The Factors Unspoken

I’m surprised that Robert Samuelson doesn’t mention two reasons for the Federal Reserve to continue bringing interest rates closer to normal in his column in the Washington Post on how the Fed should react to recent developments:

The current job expansion is an important venture in social policy. People who were tossed out of the labor market are returning, along with many who were never in the market. This may have long-term benefits. If the Fed is too aggressive in fighting weak inflation and mild speculation, it might kill the recovery and sacrifice these gains.

On the other hand, the Fed could become too concerned with a recovery. Throughout history, the Fed has been prone to overstay episodes of easy money and loose credit. By the time this is obvious, the damage has already occurred. Inflation has accelerated, or speculation has become widespread. The economy then enters a long stretch of poor performance.

The first unstated reason is that with the present continuing low interest rates the Fed doesn’t give the Fed much leeway in the case of an economic downturn. This is all the more astounding since econpundits have been harping on it for most of the last decade. Apparently, it’s suddenly become uninteresting.

But second persistent low interest rates have generally injured savers, particularly elder savers who are necessarily risk averse. I would hope that interest rates held under 2% for a decade would disabuse critics of the notion that most people actually able to save for their own retirements. Only those in the two decile of income earners have that luxury and not all of those.