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Is it time for Fed to raise interest rates?

John Dimsdale Dec 15, 2009
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Is it time for Fed to raise interest rates?

John Dimsdale Dec 15, 2009
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Kai Ryssdal: You know, the economy is kind of rolling along. We learned this morning factories cranked up their output last month. Also, wholesale prices were up. Both of those numbers will be prime topics of discussion at the meeting the Federal Reserve’s having today and tomorrow on interest rates.

Those rates, and when they might go up, are among the more important economic levers the government has. It’s all but certain the Federal Reserve will leave them right where they are tomorrow. Our Washington bureau chief John Dimsdale explains why.


JOHN DIMSDALE: It’s still only a guess whether stores can pass along all their new costs to customers. In a letter to Congress, Fed Chairman Ben Bernanke said slack in the economy means inflation is unlikely to take hold anytime soon. So the Fed is signaling it has no intention of raising short-term interest rates. But inflation fighters see something to worry about.

Former SEC Commissioner Joseph Grundfest is now a Stanford business law professor. He says for some, it’s just about time for the Fed to ease up on the accelerator.

JOSEPH GRUNDFEST: If you let inflationary expectations get settled in the economy, it then becomes much more difficult to actually reverse those expectations. As an example they look back to the 1980s, and the experience of Paul Volcker when he had to jack up interest rates to very high levels in order to quell inflation in the U.S.

But most experts say the Fed’s loose money policy has yet to take hold in the economy. Just look at the lack of jobs, they say. So they don’t expect any change from the Fed, other than an acknowledgment the economy is looking better.

At the same time, T. Rowe Price economist Alan Levenson says the Fed is aware that they will have to raise rates as the economy gains strength.

ALAN LEVENSON: There’s probably a lot of hustling going on behind the scenes to get everything in place they’re going to need to be able to raise the federal funds rate when the time comes to do so.

Levenson expects plenty of warning ahead of any interest rate increases so as not to frighten a fragile economy.

In Washington, I’m John Dimsdale for Marketplace.

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