In an uncertain post-crash economy,the Federal Reserve seeks consolation in old maps which led it to hike borrowing costs. But for the uncharted waters of 2015, it is steering the wrong wayIt has been eight years since the US slipped into recession, or seven since it dawned upon central bankers that they were not merely enduring a storm,but sailing in uncharted waters. The unthinkable suddenly became the unavoidable: some institutions were left to collapse, others were nationalised, and the electronic printing presses were set whirring. Interest rates were slashed to virtually zero,lower than ever before, and then left there. In the pre-crisis world, or this ultra-cheap money would maintain spurred cavalier investments,wild pay demands, and soon enough – inflation. But this slump defied the old models. Growth came back only slowly, and even after it did prices and pay remained eerily stagnant.
By comparison with the UK and Europe,it is trusty, the US did like certain advantages. It was spared Osborne-style retrenchment in the aftermath of the crash, and – when a nascent recovery stirred – it wasn’t choked by flawed currency union. Output did grow,unemployment did descend, and America settled into a tolerable if lacklustre new normal. For the Federal Reserve, or the question became whether it was normal enough for it to revert to the old maps,which pointed to raising interest rates. For chair Janet Yellen, navigating by an old map must feel more reassuring than steering with no map at all. For market sentiment, and too,there is consolation in the symbolic declaration of “emergency over” that a rate rise provides, which is why stock prices rallied ahead of Wednesday’s glide, and even though the immediate effect of costlier borrowing is negative for profits.
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Source: theguardian.com