Economics question...do you think the Fed should raise the interest rates back up in the near future?

Question

In a press conference today, Federal Reserve chairmen Ben Bernanke stated that he would not raise interest rates anytime soon (http://blogs.wsj.com/economics/2008/08/22/bernanke-fed-to-act-as-necessary-on-inflation/].

With inflation growing...and the regular consumer too scared to invest, would raising the interest rates not give incentive to the middle class worker to put his/her money in a safe investment? Thus giving more money to the struggling banks. Additionally, consumer confidence, which is at an all time low (http://calculatedrisk.blogspot.com/2008/04/consumer-sentiment-falls-to-26-year-low.html) could raise if the public believes that there is an end to this economic down turn soon. Wouldn't more customer spending avoid gratifying the "self fulfilled prophecy" that this country has put itself in by taking money away from the market, just to avoid the problem that they themselves are actually creating, mainly inflation?

What are your thoughts...what is the Federal Reserves next step in monetary policy?

Answer 1

I think raising interest rates would be a give away to the banks and raise prices on merchandise and erode buying power

Answer 2

Yes they do need to go back up.  It is part of the reason that gas is so expensive.  The low interest rate is sinking the value of the dollar.  A dollar worth less buys less oil on the world market.  

Answer 3

The biggest concern is a possible recession.  I think we are still too close to sliding into a recession, so inflation is the secondary concern.  We want folks to spend, not save, at this point.  We need to keep folks employed and producing whatever.  The rates need to stay low a bit longer.    

Over time I hope we change our consumer spending habits.  It needs to be done slowly, in my view.