US Federal Reserve Chairwoman Janet Yellen is faced with a problem. In the seventh year of an economic expansion there is considerable disagreement over whether the Fed should hike interest rates.
According to Bloomberg News, “At the presidential debate on Sept. 26, Republican candidate Donald Trump accused Federal Reserve Chair Janet Yellen of inflating “a big, fat, ugly bubble” by keeping interest rates too low. Yellen couldn’t just shrug off the accusation, because only five days earlier three members of her own rate-setting group, the Federal Open Market Committee, had expressed the same idea in more delicate language.”
So what’s the problem? The economy isn’t overheating at a time when it’s likely peaking. Unemployment is low, but then so is demand for goods or services compared to previous business expansions. Otherwise, the Fed would be happy to raise rates in order to curb inflation.
The underlying problem for Yellen and the governor’s of the Fed is that income distribution has become so one-sided that the 99 percent cannot afford to purchase enough stuff to make inflation rear its head. This is the one thing the press and Yellen don’t consider, at least not in public. Perhaps this is because it’s politically unpalatable to the super-rich overseers of the elected officials of the Republican and Democratic parties.
Those overseers have a financial stake in the outcome of the Fed’s decision. Raising rates might push share prices lower. Of course, that housing bubble might also blow up.
The 1 percent took 99 percent of all income growth from 2009-14 (an historic record), and more than 50 percent in 2015. The 1 percent now are stealing via legislation anywhere from 22 to 36 percent of all income produced every year in the US (depending on whose figures you use), up from roughly 8 percent in 1981. That leaves the 99 percent with less money to burn.
Of course, the 99 percent use credit to make up for some of that shortfall, but during this recession, picking up the slack in demand via credit isn’t working as well as during the other boom times during the last 35 years.
And so Yellen sits and waits, while the governors of the Fed argue over whether rates should be raised. There’s obviously strong interest within the Fed to pop that bubble.
Maybe those Fed officials should be wondering what they’re going to do when the economy tanks. It’s late in this boom period. Perhaps, Fed officials need to think about applying negative interest rates.
#Note: The Fed raised interest rates by a tad last November, but it hasn’t dared lift them since.