Yellen’s potential successors push for tighter monetary policy

Interest rates expected to rise in 2017

New York /
Jan.January 09, 2017 12:00 PM

Will interest rates rise at a quicker pace after Federal Reserve Chair Janet Yellen’s term ends in 2018?

Three possible candidates to succeed Yellen recently criticized what they described as overly loose monetary policy under Yellen. Stanford University economist John Taylor said Saturday that the Fed “is a little behind the curve” when it comes to raising rates.

Columbia University’s Glenn Hubbard, speaking on the same panel, agreed. “The Federal Reserve was very successful in the initial period after the crisis but continued a policy perhaps past its shelf life,” he said.

The Federal Reserve has kept its short-term benchmark interest rate for overnight interbank loans, the federal funds rate, near record lows in recent years, citing low inflation and meager wage growth. But observers expect that to change in 2017. In December, the Fed raised its target for the rate for the second time since 2006, to 0.5 to 0.75 percent.

The short-term rate matters to the real estate industry because it helps determine debt costs and impacts property prices. The prospect of rising rates has long worried many in the industry.

Kevin Warsh, another Stanford economist, said Friday that the Fed should have raise rates earlier and had focused too much on the short-term economic outlook. [Bloomberg]Konrad Putzier


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