Federal Reserve Interest Rates : Motivations Questioned

Little wonder why the financial markets are in chaos, the leadership in Washington is all about gaming the system to project an ideology of progressive socialism that is based on doing things for those that cannot do for them selves at the expenses of others, and the same time cementing their collective positions in an all powerful central government.

The Federal Reserve holding interest rates to near zero is just a political move to make sure the current leadership's legacy of bringing prosperity to the masses is kept in tact. Once out of office the attention will be on the need to raise the rates to rectify the stagnate and volatile financial system, which in turn will produce conflict in the markets, but will provide a great opportunity to blame the next administration for the chaos.

It's a game of smoke and mirrors producing fear and uncertainty among those that are responsible to make decision that will result in production success, whether in business or in the personal life of  citizens looking to the future, it all hinges on leadership and stability from the top.

But when the motivation is to distort and distract attention from reality, the result, as this article points out so well, the country stands down, unable to decide what to do next that will produce reasonable results from their personal efforts to succeed.

The Fed Is Holding Rates Down for All the Wrong Reasons
Wednesday, November 04, 2015 by David Ranson

In September and October, under intense public scrutiny, the Fed passed up another opportunity to raise short-term interest rates. So the guessing game shifted six weeks forward to the next meeting of the Open Market Committee (December 15-16) — or maybe the next meeting after that. But the longer the debate goes on, and the more public it becomes, the more it is dumbed down. In their efforts to focus minutely on the trees, all sides are losing sight of the forest.

Uncertainty Hurts the Economy Worse than Certain Action. It scarcely matters whether or when rates are raised by a quarter-point. Such a rate hike is too small to make a sustained economic difference either way, and would no longer serve even as a clear indicator of policymakers’ future intentions. What affects the economy much more is uncertainty about what the Fed will do and when. And Fed hesitation has been fostering that uncertainty.

The issue on which the debate ought to be centering is whether or not the monetary system is moving toward some kind of normalcy. Are we getting closer or further way from letting the free market determine how credit is allocated? People ask these questions less and less as the Fed strays further and further from its original mandate. And, as policymakers dither, the long-term supply of debt capital needed to fuel the economy is compromised by arbitrarily low risk-free rates of return from extending credit.

Borrowers are not better off if monetary policy denies savers a profit motive to lend to them. Until the authorities relax the stifling effect of near-zero interest rates on both sides of the credit market, the financial system is drifting without the guidance of a natural price mechanism.

Equally damaging is the economic waste that results from unnecessary volatility. The Open Market Committee announced its September decision after what the press rightly called “weeks of market-churning debate at the central bank.” Such churning diverts financial expertise from productive employment, enfeebles productive risk-taking and pulls capital into financing frivolous bets about the Fed’s actions and intentions.