I have seen that the IMF has asked the Fed to defer interest rate increases until we see clear signs of wage increases and inflationary pressure.
The request IMO is both scary and rationale given that so much of today’s National Income Accounting Identity (output=C+I+X-M) relies on factors that lie outside of its operation. I speak of new bank generated loan growth given that income growth/distribution and investment growth still appear to be weak in the scheme of things..i.e. C+I the drivers.
The last time the FRB delayed interest rate increases we had a debt financed consumption boom in the US followed by IR increases and a de facto financial collapse. By raising rates we likely restrict one of the few modes of generating consumption growth in the US (note auto loans) and many other countries. We also likely raise the impact of existing debt burdens on what are to date still historically low rates of income/wage growth.
As such you have to ask yourself just what are we waiting for? Well we need higher income growth, but not just higher income growth: we need a more equitable and fair distribution so that economic growth itself becomes less reliant on debt and low interest rates, and less exposed to the scary divergence of asset values.
But the world is also changing in ways that question whether we can effectively outwait the inevitable: populations are aging and declining. Areas where the frame can still expand in consumption terms, areas such as China, may be heading into their own period of slow growth and low IR debt support.
Importantly will the status quo submit to a reconfiguration of the pie and can the world assume a less debt dependent economic raison d’etre?
So yes, the rationale to defer interest rate rises is both scary and realistic, but it fails to answer important questions: what are we waiting for, how long can we wait, and are our hopes realistic?
This is just a quick 3 minute post, but the issues are critical!