h/t Calculated Risk, quoting another blogger, Tim Duy, on the topic of some of the language used by the Federal Reserve to set market expectations for how the Fed might adjust the interest rate at which it loans money out ("Fed Funds Rate", currently .25% or 25 basis points).
For some years now, the Fed has said that it was gonna keep that rate real low for quite a while, and it has used some different language to convey that but recently, the key word was "patient". A little background. The Fed has _two_ _equal_ mandates. It has _two_ priorities. It has _two_ goals. One goal is price stability: prices are not supposed to rise (inflation) or fall (deflation -- I know you think falling prices are Teh Awesome, but when they happen, you are all freaking out with the rest of us, you've just blotted the memory out because it was So So Painful). The other goal is full employment. Once upon a time, it was believed that full employment meant basically every man had a job. Then some stuff happened and some other stuff happened, and now we have this theory abbreviated NAIRU, which is basically if every man or woman who recently had a job still has a job (that is, no recently employed person is currently looking for work), then wages rise and prices rise and wages rise faster and prices rise faster and That Is Not Good So Don't Let That Happen make sure there are always a few people looking for work. The actual fraction of people recently employed who should not be currently employed but still looking is subject to some debate, but it's around 5%.
Currently, the not-seasonally adjusted CPI-U for all cities in the US ex food and fuel as of January 2015 is .2%. The year-over-year not seasonally adjusted CPI-U is 1.6%. Just like we don't want everyone to have a job (cause that makes for inflation), we don't want to have zero inflation (because it can tip over negative and we're back into that thing you blotted out because it was So So Painful). The current target for inflation is 2%, which means that even year over year inflation is Too Fucking Low. But getting close. HOWEVER we are in the middle of a ginormous crash in the price of fuel and the result is that we are actually experiencing deflation right now in the headline number. Yes, you heard me, and you are actually happy about it because you can take all those $20 you used to pour into your gas tank and go spend them at Applebee's instead.
For CPI-U numbers go here: http://www.bls.gov/cpi/
So Tim Duy thinks that the Fed will remove "patient" from the language but not immediately raise rates. Other people are thinking RAISE RATES NOW NOW NOW and their argument is, when it is not totally crazy, fairly simple: we are experiencing asset inflation not captured by CPI-U. Basically, all the super yachts and art objects and condos in Manhattan and similar have gotten Way Too Expensive, because stock prices are up all over and people are borrowing against their portfolio to buy real estate and that just sucks for all the people who were hoping to get the same thing for less. That's _the sane_ argument for raising rates (doesn't sound sane? You may be on to something there).
Predictably, Krugman has a column out about asymmetrical effects of raising rates.
Notably, he says something NICE about Greenspan (I know -- I was a little surprised, too):
"Circa 1994 it was widely believed, based on seemingly solid research, that the NAIRU was around 6 percent; but Greenspan and company decided to wait for actual evidence of rising inflation, and the result was a long run of job growth that brought unemployment below 4 percent without any kind of inflationary explosion."
Here's what I'm thinking. Don't do it in June, because everyone will be about to head out on vacation, so they'll make the absolutely most conservative decision possible and the economy will stall the fuck out. But if you do it in September or later, then you'll be raising a lousy 25 bp into the Christmas season and even if you cock it up completely, it'll probably be okay and you can undo it in January. And if we needed to do that, then it'll be great, and you can raise again early in 2016.
Also, I'd wait until after we top up all the storage to see what happens to oil prices when no one is buying that stuff to store it for later. Because that could be a wild ride for a bit there.
[ETA: Cushing to fill by end of May: http://www.argusmedia.com/News/Article?id=1001222]
It is not worth arguing this much about 25 bp. This is the most anticipated rate rise In the History of the Federal Reserve. It is going to be okay.
[Two more things to point out. While currently low gas prices have the simultaneously scary effect of pushing us into headline deflation and the simultaneously lovely effect of giving ordinary people extra money to spend on something they've been wanting for some time now, at some point fuel prices -- and food with them -- will rise once again. And then they won't have that extra money and the economy has a whole will Really Feel the Pinch, if we treated that extra spending as "inflation" inducing -- ha! -- and discouraged it. Second thing: the European Union is finally being sensible and trying to crawl out of what looks like the beginnings of another recession. We could help them a bit by allowing the Euro to continue to weaken and the dollar to strengthen, compatible with a 25 bp rise by the Fed. I think. Unless I got it backward, again.]
[USA Today's commentary seems to be leaning towards September. http://www.usatoday.com/story/money/2015/03/06/investing-a-sea-change/24454215/]