Should Yellen Listen to Buffett?

Warren Buffett recently stated that he does not think it is time to raise interest rates. While the Fed Chairman does not have to (nor should have to) listen to business leaders when making monetary policy decisions and Buffett may have some self-interest involved, Buffett may have a point.

America seems to be progressing from the great recession, but is by no means free and clear of economic troubles. Unemployment may have bounced back, but the labor force participation rate is still down from pre-recession levels. Still, progress is clear and America is steadily regaining its financial footing. America, if America was in an isolated bubble, would most likely be ready for an increase in rates.

However, America is not in an isolated bubble. Yellen has to worry about a Chinese economic slowdown, Euro instability, and an increasing American dollar value when making a decision. So who is right? The answer is nobody. It is not clear what the “correct” decision is and when exactly rates should rise. However, I would caution America from pursuing a monetary policy that over-values the situation outside America. While all economies are intrinsically linked through the global market, America cannot always wait for the perfect moment to raise rates. There will always be potential economic situations abroad that would prevent America from making monetary policy moves. The key is to evaluate the situations then make an informed choice.

Source:

http://www.bloomberg.com/news/articles/2015-02-04/buffett-says-tough-for-fed-to-raise-rates-given-strong-dollar

Advertisements

3 thoughts on “Should Yellen Listen to Buffett?

  1. anthonycritelli

    This is a very interesting post and a complicated situation. With the economy still on the rebound, raising interest rates could halt progress. On the other hand, leaving the interest rates so low may be good for the American economy but it may not be the best option when taking into account the interconnectedness of the world economy.

    Reply
  2. kacoff17

    Also the economy is on the road to recovery, it is not fully recovered yet. If we increase interest rate, this could slow down recovery or even halt its progress like the above comment said. I think another major problem with this is that although banks are borrowing money, they are holding on to that money in excess reserves so it is not getting multiplied through the economy. Although this has decreased over the past few years, I still think that it is a problem because without the banks lending money, there will be lower GDP because less people can borrow money and thus less “things” are bought. So although bringing up the interest rates is a major concern, another concern is banks loaning that money.

    Reply
  3. Victor Matheson

    Not easy being the Fed chair. Personally, I lean towards the “don’t raise rates until you see the whites of inflation’s eyes” approach (to take a Bunker Hill analogy.)

    Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s