Saturday/ should the Fed ‘worry’ more?

I have never studied economics formally, and so I had to look up the ZLB and Great Moderation that economist Paul Krugman refers to in a blog post in the New York Times. ZLB stands for ‘Zero Lower Bound’ and means that a central bank (such as the Federal Reserve in the United States) has no ability, or a very limited one, to stimulate the economy with interest rate cuts.  The ‘Great Moderation’ refers to a reduction in the volatility of recessions and economic growth cycle fluctuations, that started in the mid-80s. The reduction is attributed to central bank independence (from politics), monetary policy and improved economic structures.  But here we are in August 2016 with near-full employment, near-zero interest rates, some eight years after the Great Recession, and wages not going up for the average worker.  We still cannot pay workers a living wage (the federal minimum wage has been stuck at $7.25 since 2009).

Source: Reifschneider, Federal Reserve. This graph shows that there is NO ROOM down for the Federal Funds Rate to be cut, should the next recession arrive sooner than everyone anticipates.
8-28-2016 9-56-43 PM
Paul Krugman’s blog post in the New York Times.



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