After a long period when the key rate was at a near-zero level, the us Federal reserve began to increase. At its last meeting, the regulator predicted that with the level of 0.50–0.75 per cent rate will rise three times this year. About why the fed has moved to normalize its monetary policy, “Газете.Ru” said according to the results of the Gaidar forum at the Ranepa Jacob Frenkel, Chairman of JP Morgan Chase.
We have many years exist in unusual monetary policy. All Central banks sought to lower interest rates to a level close to zero. It was necessary to get out of the recession of 2008-2009.
I think, when it was introduced this policy, no one imagined that it would last so long. The situation was the same fire.
When there is a fire, it must be extinguished with water. But when you the fire was extinguished, there is no need to pour water, otherwise you’ll ruin the carpets and everything else.
Over time the situation has improved, particularly in the United States. And gradually the Federal reserve started to raise rates. There are three criteria that takes into account the Federal reserve (and other Central banks), adopting the decision on the beginning of normalization of monetary policy.
The first criterion is what’s happening with the economy. U.S. economic growth returns to the natural cycle. Second — what happens to unemployment. In the US, she is now radically reduced and is about 4.7%. The duration of stay in USA is also greatly reduced. The third criterion relates to what is happening with inflation. The U.S. has not yet reached the target level of 2%, but close to it.
In Europe or Japan, the situation is different. For example, in Spain and Greece, extremely high unemployment, and they are not ready to normalize monetary policy. So now there is a big gap between fed and the European Central Bank. This gap may lead to exchange rate changes, sometimes these changes can wear shock character.
Overall for Europe, USA and Japan is that the Central banks are overloaded. And can not be confined to monetary policy. In order to achieve sustainable growth, it is necessary to combine monetary policy and fiscal and structural measures.
Some say: why not continue the policy of low interest rates, because stock markets are thriving?
I would like to note that if you postpone the normalization of monetary policy, then it will have to pay a certain price. First, broken links between the real economy and the financial sector. Second, low rates stimulate investments exclusively in the financial sector, which creates an unnatural rise in the markets, and we get bubbles.
It is understood by all Central banks. They, of course, on the one hand, striving to bring inflation to 2%, but at the same time trying to maintain financial stability and to prevent the emergence of bubbles.
It is worth noting that the economic policy does not exist in the conditions of crisis management. This is very important because in 2008-2009, all thought in terms of crisis and short-term categories. At the same time, sustainable development requires a different mindset, focus on long-term strategy.
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