[ffreire]

Your response coupled with your username gave me a shiver, heh.

That said, why would the Fed tighten money in the fall when we're so close to an election year? I know they hold longer terms to hopefully avoid political swings, but, it just seems like bad timing.

[nostrademons]

Well, if the Fed doesn't tighten, they're at a pretty high risk of introducing serious inflation into the economy. The high commercial rents are a form of inflation; so are the wages of tech workers, and people being priced out of the Bay Area. So far, this is local to a few industries and metropolitan areas, but if the Fed doesn't act you could see it start showing up in nationwide statistics.

That said, I'm not entirely convinced Yellen will tighten. She has a reputation as a dove on monetary policy and seems weak to me, overly afraid of the effect her actions will have on the stock market. It wouldn't surprise me if we end up with another 1997 situation, where some temporary economic instability makes the Fed put off tightening or even introduce additional stimulus, and this ignites a speculative bubble that raises prices beyond all reason and then bursts.

(The username is ancient, I've had it on various sites since college, and while I'd love to be thought of as a prophet, my track record isn't that good.)

[marincounty]

"Well, if the Fed doesn't tighten, they're at a pretty high risk of introducing serious inflation into the economy."

I doubt this will take place. If anything, I think we will see deflation?

These low interest rates have provided gambling money to the 1 percenter's. (I don't want argue--just the way I see it.)

There's a part of me that want to cash in on these low interest rates(part owner in a home in the Bay Area--that people really seem to want.), but my inner voice--wants the fed to raise rates?

Why--the poor/middle class have been left out of the recovery(unless you are in tech.). We get essentially 0 % on our meager cd savings accounts. We can't gamble in this bubbly/momentum/free money stock market?

In essence, what the poor/middle class got out of this recovery is no change in wages, higher rent, higher fees, and 0 percent on our savings. (I do appreciate the access to health insurance though. At least, they(hospitals) can't attach my interest in a home-- if I got sick, and managed to survive? Before Obama Care, I couldn't get health insurance, and always knew I was one judgement away from being homeless. (For those that hate ObamaCare, I would be happy with a 2 million, nationwide--homestead exemption, incorporated into our federal bankruptcy laws? All homes should be judgement proof.)

So Janet--raise the interest rates. The rich boys are just gambling, and laughing! They have so much money they don't know where to put it? The REIT's are buying up too many commercial/residential units; on your free money--I sometimes wonder whether its foreigners(who can buy a home in the U.S., as easily as picking up a phone), or REIT's whom own more?

See, only the banks, and their Best clients are given this free money. I am not seeing the trickle down? We got out of the risk of Depression? It's time to raise rates, and never bailout another bank again.

[aliston]

Couldn't agree more. There is no inflation nationally, and we are nowhere near full employment. The only reason to raise rates is to curb asset inflation among the 1%.

The problem is that the American middle class needed the bailout that went to the banks and raising interest rates will hurt an already down and out main st. Frankly, we should have just given a massive tax rebate to the middle class. Of course, it's politically infeasible, but they would have actually spent the money in the real economy rather than using it to drive up asset prices.

[_delirium]

On a nationwide scale, the oil-price crash is adding some offsetting economic slowdown (since the U.S. is a huge oil producer) which I think significantly reduces inflation risk. The previously booming energy sector is stalling and moving towards a contraction: reducing investments, laying off employees, etc. SF rents are going up, but Houston rents are going down. The overall engineering employment market is also getting slightly less tight as petroleum engineering is no longer sucking up every ounce of spare talent.

Plus just in terms of the benchmarks they watch: The headline CPI is currently at a miniscule 0.1%, way below the 2.0% target. The personal-consumption-expenditures (PCE) rate is somewhat higher at 1.3%, but still below the target.

[lil_cain]

nor was Nostradamus'

[fredkbloggs]

I'd turn that on its head: keeping short rates as low as they are requires extraordinary economic weakness. The only bad time to raise rates away from zero is when a total collapse is ongoing. None of the recent economic data suggests that a collapse is ongoing; quite the opposite.

You're right that it's bad timing in that their rate increase is likely to come shortly before a bust, and therefore will be second-guessed to no end. But that's the case precisely because it's coming far too late. The solution was to normalize rates near 2% during 2013 and then raise them slowly from there as data improved, not to delay further. Normalizing policy sooner would have limited the overheating this article is all about and therefore limited the impacts of the coming bust, perhaps even to a sub-recession level. Further delay will make things much worse.

The election is irrelevant to an independent central bank, and in any case the major elections are (not that you'd know it from reading the MSM) 15 months away.

The best time to raise rates was a long time ago. The next-best time to raise rates is now.

[_delirium]

They would need a new approach to monetary policy to really have justified raising rates in 2013, because there was neither inflation nor full employment, the two things the traditional Taylor rule watches. Inflation was stuck around 0.1-0.2% for all of 2013 (below target), while unemployment was around 7-8% (above target).

If the SF Bay Area had its own monetary policy, things look a lot different in the local statistics, of course.

[fredkbloggs]

Part of the problem is that the CPI-U (and the PCE chain deflator) indicators they use don't do a very good job of capturing the cost of living for anyone. Cue rant on hedonics, basket problems, etc.

In the 70s the big focus was on the wage-price spiral, so hourly wages and prices paid were important indicators. Today there is zero wage inflation going on despite near-full employment, and instead asset prices are in an upward spiral. The preferred indicators should have changed to reflect reality but they haven't. That reality is that outside of a bubble sector there may not be wage growth during the lifetime of anyone now living. When the unions ruled the roost and labor's share of revenue was sky-high, a focus on wages was appropriate. Today, unions are almost gone, wage growth is nonexistent, and virtually all money being created is flowing to owners of capital. I'm not interested in debating whether this is healthy, and neither should the FOMC; that's not its job. But under these conditions, asset prices should be the primary driver of monetary policy, not wages or employment and certainly not the near-useless CPI-U. That driver is screaming slow down!!! and has been for some time now.