22 March 2019 — Michael Roberts Blog
This week, the US Federal Reserve Bank decided to stop raising its policy interest rate for the rest of 2019. The Fed started hiking rates from near zero back in late 2016 on the grounds that the Long Depression (in economic growth, investment and employment in the US and in other major economies) was over. As economies reached full employment and used up excess capacity in industry, wages rises and price inflation would accelerate, so it would be necessary to curb any ‘overheating’ with higher interest rates to slow borrowing and spending. This policy of ‘normalisation’, as it is called, seemed to be justified after the Trump tax cuts were introduced in late 2017. Those measures led to a sharp rise in after-tax profits for US corporations and an apparent pick-up in US real GDP growth, reaching a 3% yoy rate at the end of 2018. All looked well.