Running Hot

At a speech last Friday, Janet Yellen expressed a hypothesis that in order to breathe life into the U.S. economy, the Fed might need to let it run hot for a little while.  I believe that her words were to “run a high pressure economy”, meaning that they could let inflation charge ahead of their 2.0% target to get things moving again.  It’s an interesting comment considering we haven’t even maintained that  2.0% growth rate for years now.  On the plus side, while things aren’t cooking as quickly as hoped for, the economy has been growing for the last 87 months, the third longest streak on record.

The tool that the Fed has been using to keep the economy running at their desired growth level is interest rate manipulation.  To eek out what minimal growth we have experienced over the last eight years, that rate has been kept pretty close to zero. There is currently a 7% chance for a rate hike at the next FOMC meeting on the 2nd of November, and a 69% chance for a bump at the conclusion of the December 14th session.