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Is It Time For Fed To Raise Interest Rates?

Publication Date: 
December 15, 2009
Source: 
Marketplace
Author: 
John Dimsdale

Professor Joseph Grundfest was a guest speaker on a radio show, Marketplace, to discuss Federal interest rates:

Is it time for Fed to raise interest rates?

Factories cranked up their output in November and wholesalers are raising prices. But that doesn't mean the Federal Reserve will raise interest rates. John Dimsdale reports.

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.

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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.