Here's why the Fed can't raise rates
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After raising interest rates in December, the Fed said repeatedly that it intends to raise them gradually, and only if economic growth improves.
In fact, the Fed expects to raise rates even more gradually today than it did three or six months ago because it doesn't think the US will hit its 2% inflation target until 2018:
“In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.”
A 2% inflation rate is just an excuse
I think the Fed is targeting a 2% inflation rate because it offers the best excuse to keep interest rates low. And the reason the Fed wants to keep interest rates low is that the carrying cost of our nearly $19 trillion of national debt would explode if rates moved substantially higher.
More than anybody else, the US government will feel the most pain as the largest borrower of money.
Zero interest rate policy and QE is more about keeping our debt bubble from exploding.
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