After seven years of zero or near-zero interest rates, the Fed today changed course, albeit modestly. Also the increases, which begin at one-quarter of a percentage point will be implemented on a regular basis going forward.
The Guardian pronounced the increase “premature” and “risky.” Paul Krugman believes the Fed increase is bad policy. I, for one, wonder why the Fed thinks raising rates is demanded by an economy still operating far below capacity and having a long way to go to meet pre-recession levels.
Take the labor force participation rate. It continues to fall fast, which is not a good thing.
Nor is inflation threatening. It remains far below the Fed target and further still below the level Keynesian economist believe is necessary to restore economic output to post-war norms (e.g., here).
Nick Bunker, writing for equitable growth.org, opines:
But the step toward higher interest rates will result in fewer workers employed than otherwise and slower wage growth. This choice is one to not fully use the potential resources of the U.S. economy—and we will all be worse off for that decision.
UPDATE (Dec. 16, 2015):
Writing for Vox, Timothy B. Lee:
In September, Fed officials projected that inflation would be only 1.7 percent in 2016, so it kept rates low. Now the Fed thinks that inflation will be even lower — 1.6 percent — in 2016, yet it’s raising rates anyway.
This doesn’t make sense.