Kansas City Federal Reserve Bank President Thomas Hoenig sounded the inflation-curbing call earlier than Trichet when he said Wednesday that the central bank should consider lifting its target interest rate from its current low point of 0-0.25% that has been in place for more than 2 years.
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It is just a matter of adjusting the monetary base according to a gold target, rather than a Keynesian interest rate target.
Since December 2008, the central bank has kept its short-term interest rate target at 0.00%-0.25%.
On Wednesday, the Federal Open Market Committee (FOMC) voted to keep its interest rate target unchanged through at least late 2014.
The Swiss National Bank surprised markets by cutting its key interest rate target by 0.25 percentage points, citing growing economic uncertainty amid sharp plunges in global equity markets and a reduced risk of inflation.
Now to be clear I think the primary driver of low interest rates across the board is the presumption of weak nominal growth and that weak growth leading the Federal Reserve to keep a low interest rate target.
Moreover, while the Federal Reserve has stopped cutting its key interest rate target for the time being, the central bank does not show any signs of raising rates above the 2% mark any time soon--a good indication of the dollar's relative weakness.
The Fed would have to abandon its interest rate fetish, and target the price of something real.
Neither will targeting the Federal Funds interest rate, no matter how the target is chosen.
If short-term interest rates (primarily the target Fed-Funds rate) are close to zero the impact of more bank credit and more money creation through open market purchases remains.
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"We got a relatively high interest rate, but raised the maximum target and that has given the market cheer, " said Predrag Dukic, senior equity sales trader at CM Capital Markets in Madrid.
The Federal Reserve has been flooding the banking system with cash, so much so in the last week that it has pushed the effective overnight interest rate below the central bank's target 2%.
The Item Club also says that the government's choices include sticking to the current inflation target of 2% - which could mean no more interest rate cuts for some time, and therefore lower economic growth.
It is presumed that increases in the Fed's target rate for overnight loans are bad for stocks because high interest rates make the future earnings from corporations less valuable today.
However, when central banks pay interest on reserves or a deposit facility, this interest rate is rarely the one used to set the target for short-term private sector borrowing rates.
Unemployment has continued to tumble, to far below the point previously thought consistent with stable inflation, yet inflation (excluding mortgage-interest payments) is bang on the Bank's target rate of 2.5%.
That would require a change in the government's instructions to the Bank of England, which is told to set interest rates to meet an inflation target, not track an exchange rate.
The figure is still above the ECB's target to keep inflation below 2%, but the lower-than-expected number could fuel calls for an interest rate cut next week.
The Fed would cut the rate two more times in 2007 as the financial crisis worsened, leaving its target for short-term interest at 4.25 percent at the end of the year.
Switching to a quantity of money target to get out from having to defend the high interest rates necessary to tighten money, Volcker allowed the federal funds rate to reach 20 percent for much of 1981.
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