Brad Delong raises an interesting point on short term interest rates set by the Federal Reserve:
I see nothing in the data to suggest that 2% will be reached if the Federal Reserve does not reverse its tightening cycle as ill-judged.
That is all.
Jared Bernstein: Inflation?! We ain’t got no stinkin’ inflation!: “The core PCE deflator rose at an annual rate of only 1.2 percent in 2016Q4…
The betting market is slightly favoring an interest rate hike soon. The Republican Party economists or at least their donor class have been arguing for significantly higher interest rates and harder money. The data so far does not support a need for higher interest rates as there still is no inflation to worry about.
So what should Democrats and liberals do or not do? All else being equal, higher short term rates means a slower economy as investment gets to be slightly more expensive, housing gets slightly more expensive and debt carrying costs increases which means discretionary spending decreases for a given income and debt level. The impact of higher interest rates has a long lag of at least a year or more.
Midterm elections are effectively a vote on the incumbent party. A better economy, all else being equal, means a better vote margin for the incumbent President’s party. It is in the best interest of the Democratic Party to have a shitty economy in 2018. So should Democratic wonks rally against premature interest rate hikes or say it is a dumb idea and then let it be?