The Fed'S Decision To Raise Interest Rates Is Clear.

The Fed will announce the interest rate decision, and then 02:30, President Yellen, will hold a news conference.

As recently pointed out by the former Federal Open Market Committee member kirschla Koda, the federal funds interest rate has not changed or even declined, and no matter what the situation is, it is a mistake.

However, Bloomberg View recently published an editorial urging the Federal Reserve to increase interest rates.

The following is the full text:

At present, the unemployment rate in the United States is 4.9%, which is considered to have reached full employment.

The federal fund's current interest rate is 0.25-0.5%, a monetary stimulus that was once considered to be quite strong.

Before the financial crisis, economists would call such a combination an imbalance: full employment needs to exit stimulus, otherwise inflation will rise.

However, both sides of the relationship are now being questioned.

It is not clear what the full employment represents.

The labour force participation rate has not returned to pre crisis levels, which means that further stimulus may be needed to bring more people back.

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Wage growth has accelerated slightly recently, but prices have not shown a real upward trend: inflation remains below the Fed's 2% target and future inflation expectations are falling.

Managing the Fed has never been easy and its difficulty is increasing.

In the eight years since the outbreak of the financial crisis, the US economy has released all sorts of puzzling signals, but the Fed's policymakers are not sure what these signals mean.

This is quite embarrassing, because

It is clear guidance that we hope to get from the Fed's interest rate decision this week.

Under such circumstances, the Fed is doomed to be disappointing.

What it can do is to speak prudently before the normalization of monetary policy, explain what is "normal" at present, and promise to maintain an open attitude when new information is available, but now people need what the Fed does, that is, raising interest rates by 25 basis points.

As a result, full employment has been hard to "say the same thing", and interest rates, many economists say, are not as low as they seem.

This is because the best way to measure monetary stimulus is

The difference between neutral interest rate and interest rate will not increase and the demand rate will not be reduced.

According to the Federal Reserve, the expected neutral interest rate in the United States has been declining, now 2-3% and not more than 4% or more.

This means that the level of stimulation is lower than that shown by 1-2%.

Such an analysis does not take into account the growing threat to financial stability in the future.

Very low interest rates, coupled with the Fed's expanded balance sheet due to quantitative easing, are supporting demand as much as possible, although the effectiveness of the policy is decreasing.

At the same time, however, such policies artificially raise the price of financial assets, distorting the normal risk taking mode of financial market.

These distortions are the inevitable cost of emergency stimulus.

(but) the emergency is over.

Reduction and eventual elimination of such distortion should become a pressing matter of the moment.

This is a problem that the Fed can clarify this week.

In the case of unemployment below 5%, it is appropriate to gradually withdraw from monetary stimulus.

The Fed should make such a statement and prove that it is not true.