The US Federal Reserve has released the minutes of the September meeting of its monetary policy committee. The old guessing game of trying to figure out what comes next has begun. Many have found indications that an interest rate hike is coming in December. Others say that the doves will continue to win the argument till inflation remains below target. The actual statement is predictably equivocal.
Look at the facts. The Fed raised interest rates once in 2015. There is a chance that it may raise them again this year. Two rate hikes in two years seem to be enough to rattle the financial markets, even when the world is flooded with excess liquidity.
Let’s take the long view. It will soon be a decade since the Fed began cutting rates in the summer of 2007 in response to the growing stress in subprime mortgages. The Fed Funds Rate was 4.25% then. It is now 0.5%. The Fed balance sheet has quintupled since 2008, an explosion of base money.
Some perspective is useful in such times.