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Thursday 15 October 2009
Interest rate rises should come only after jobs rebound, says Krugman
Central banks should fight the urge to raise interest rates until the global economy showed stronger signs of recovery and joblessness began to decline, Nobel Prize-winning economist Paul Krugman said yesterday.
Interest rate rises should come only after jobs rebound, says Krugman
Associated Press in Seoul 15 October 2009
Central banks should fight the urge to raise interest rates until the global economy showed stronger signs of recovery and joblessness began to decline, Nobel Prize-winning economist Paul Krugman said yesterday.
“Under the best of circumstances, we’re going to have years before we return to anything that approaches reasonable levels of employment in the major advanced economies,” Krugman told the World Knowledge Forum, an annual conference sponsored by a South Korean business newspaper. “It means keeping interest rates close to zero for a very long time.”
Krugman, who teaches at Princeton University, won the Nobel Memorial Prize in Economic Sciences last year for his analysis of how economies of scale can affect international trade patterns. He also writes columns for the New York Times.
His remarks come amid a debate over “exit strategies” - or when the extraordinary measures such as ultra-low interest rates and other financial and economic support measures put in place to fight the global economic crisis should start being withdrawn.
Krugman said he was worried by the increasing number of voices calling for an end to the unconventional monetary and fiscal responses, which he credited with saving the world from sinking into depression.
“There have been some amazing statements by members of the Federal Reserve system, saying that we may need to start raising interest rates even before unemployment starts to drop,” he said.
Krugman called it “alarming because it does bring back echoes of the Great Depression”.
The Fed, which has pumped more than US$2 trillion into the economy to spur lending and boost consumer spending, is not expected to raise its key interest rate until some time next year, at the earliest. The rate is at a record low near zero.
Krugman said that according to his calculations, the United States should avoid exiting from its measures until the unemployment rate falls to “roughly 7 per cent, which is a development that is at least two years and probably much longer away”.
The US unemployment rate last month stood at 9.8 per cent, the highest since 1983. Most analysts expect the world’s largest economy to keep losing jobs for several more months and the unemployment rate to peak above 10 per cent by the middle of next year, even as the economy starts to recover.
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Interest rate rises should come only after jobs rebound, says Krugman
Associated Press in Seoul
15 October 2009
Central banks should fight the urge to raise interest rates until the global economy showed stronger signs of recovery and joblessness began to decline, Nobel Prize-winning economist Paul Krugman said yesterday.
“Under the best of circumstances, we’re going to have years before we return to anything that approaches reasonable levels of employment in the major advanced economies,” Krugman told the World Knowledge Forum, an annual conference sponsored by a South Korean business newspaper. “It means keeping interest rates close to zero for a very long time.”
Krugman, who teaches at Princeton University, won the Nobel Memorial Prize in Economic Sciences last year for his analysis of how economies of scale can affect international trade patterns. He also writes columns for the New York Times.
His remarks come amid a debate over “exit strategies” - or when the extraordinary measures such as ultra-low interest rates and other financial and economic support measures put in place to fight the global economic crisis should start being withdrawn.
Krugman said he was worried by the increasing number of voices calling for an end to the unconventional monetary and fiscal responses, which he credited with saving the world from sinking into depression.
“There have been some amazing statements by members of the Federal Reserve system, saying that we may need to start raising interest rates even before unemployment starts to drop,” he said.
Krugman called it “alarming because it does bring back echoes of the Great Depression”.
The Fed, which has pumped more than US$2 trillion into the economy to spur lending and boost consumer spending, is not expected to raise its key interest rate until some time next year, at the earliest. The rate is at a record low near zero.
Krugman said that according to his calculations, the United States should avoid exiting from its measures until the unemployment rate falls to “roughly 7 per cent, which is a development that is at least two years and probably much longer away”.
The US unemployment rate last month stood at 9.8 per cent, the highest since 1983. Most analysts expect the world’s largest economy to keep losing jobs for several more months and the unemployment rate to peak above 10 per cent by the middle of next year, even as the economy starts to recover.
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