Wednesday, May 25, 2011

OECD: Fed Should Raise Rates - Or Risk Bubbles and High Inflation

The OECD has just released its semi-annual forecast. It says that the U.S. Federal Reserve should be hiking interest rates soon, "in coming months". It also sees U.S. economic growth of 2.6 percent in 2011, much lower than the Fed's estimates.

The Fed had growth estimates between 3.1% and 3.3% as recently of April 27. That is a big difference.
The OECD is indeed recommending the Fed begin slowly withdrawing some of its extraordinary aid to the economy.

"A modest reduction in monetary stimulus should get under way in the second half of this year,", adding that the Fed should raise its benchmark federal funds rate to 1% from 0-0.25%.

The OECD says that low rates raise the risk of future bubbles or inflationary shocks.

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