Niagara University economist shares his thoughtsDr. Tenpao Lee, Economist and Professor Emeritus at Niagara University in Western New York, made the following comments in anticipation of tomorrow’s interest rate hike by the Fed.
Is The Fed Likely To Raise Rates?
I think the Fed should not raise rates anymore, but it is likely that it will implement a 25-basis point hike.
What Is The Reasoning Behind Your Thinking?
The inflation since 2021 was caused by the aggregate supply factors, i.e. supply disruptions caused by the pandemic and supply shortages caused by the Ukraine war.
To make matters worse, the confrontation between China and the USA has added another layer of uncertainty to the economy from the supply side. With higher interest rates to lower aggregate demand, the Fed can contain inflation only from the demand side, not the supply side.
Therefore, higher interest rates will not be able to contain inflation effectively, as inflation is determined by the equilibrium of both supply and demand.
How Has The Banking Crisis Factored Into The Equation?
The ongoing banking crisis requires more liquidity to go along with lower interest rates. The Fed is, therefore, further challenged by conflicting goals and the need to prioritize its options.
To have a smooth transition from the current status quo to an optimal soft landing, the Fed should go back and forth on its policies by slowing down quantitative tightening and it should allow the economy to adjust accordingly.
About Niagara University
Founded by the Vincentian community in 1856, Niagara University is a comprehensive institution, blending the best of a liberal arts and professional education, grounded in our values-based Catholic tradition. Its colleges of Arts and Sciences, Business Administration, Education, Hospitality, Sport and Tourism Management, and Nursing offer programs at the baccalaureate, master’s, and doctoral level.
As the first Vincentian university established in the United States, Niagara prepares students for personal and professional success while emphasizing service to the community in honor of St. Vincent de Paul. Niagara’s institutional commitment to service-learning has led to its inclusion on the President’s Honor Roll for Community Service every year since its inception in 2006, and its recognition with the Carnegie Foundation’s Classification for Community Engagement.