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Interest Rates and the Strength of the Economy

Janet Yellen’s explanation for continuing the absurd trend of ZIRP (Zero Interest Rate Policy) was essentially that, while the Fed had hit its official unemployment level goals (for clarification, the reason for this is that the labor participation rate is at historically low levels and also because we are in a boom phase of the business cycle due to the expansion of the money supply, per the Austrian Business Cycle Theory.), the economy itself was not yet strong enough to withstand the beginnings of a raise in the Federal Funds rate.  The economy is still holistically too weak for the Fed to be comfortable with a 25 basis point uptick in the price of credit.

Richmond Fed President Jeffrey Lacker was the lone dissenting voice from this position. In his estimation, the economy is actually strong enough to take on the early stages of what must eventually be a long haul toward historically normal interest rate levels.

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Published in C.Jay Engel