Inflation Increase?

The lead article in today’s New York Times is titled, “In Surprise Move, Fed Signals Pivot to Normal Policy.” The article describes an increase in the interest rate charged to banks for short-term loans from 0.5 percent to 0.75 percent.

The announcement was made after the stock market closed, and it remains to be seen whether this action will touch off a selling spree on Wall Street. The Fed was careful to say that it still considers the economy very fragile and would be moving deliberately.

On the other hand, many in the financial sector may see this as the beginning of a spiral of increasing interest rates, what many see as the inevitable result of pumping so much money into the economy combined with ever-increasing deficits.

It is disconcerting as a citizen to see the power of the big banks and the financial sector compared to the average American. The lobbying efforts of these industries have resulted in a halt to financial reform. Derivatives are still being traded, and business continues much as it did before the financial crisis.

So the rate increase by the Fed just represents one more potential blow to any growing confidence in the recovery of our economy. Especially when the markets react to it as you can bet they will.