For more than a year almost everyone in and around the industry has been saying that the Federal Reserve will be raising interest rates by mid to late 2015.

Chris Whalen, senior managing director at Kroll Bond Rating Agency takes – as he so often does – a contrary view, explaining why the Fed must raise rates, but it won’t.

His piece, which is in the national interest, is also in the National Interest.

Investors and economists alike greatly desire to see a Fed rate increase as a sign that the U.S. economy has recovered from the 2008 market collapse. But because economic consumption and demand for credit remain anemic, and debt levels in the industrialized nations have actually increased since 2008, any attempt by the Fed to achieve “lift off” in terms of raising interest rates is likely to result in an economic stumble.

The current debate about the direction of monetary policy is proceeding as though the U.S. economy were actually recovered. Some FOMC members and market observers want to see a rate hike to forestall increased inflation, an ancient fear that seems to be ill-considered. The global economy is still confronted by excessive debt and secular deflation, perhaps not in terms of prices for financial assets, but certainly when we look at wages, employment and commodity prices. Indeed, despite the efforts by the Fed to reflate the global economy, the United States seems to be suffering from a prolonged period of slack demand, low investment and weak prices for key industrial inputs.

For the past several years, the FOMC has maintained a target of 2 percent inflation as one of the indicators it wishes to achieve before changing policy, yet today that goal seems further away than when the target was first adopted. Indeed, consumption seems to be falling around the world, along with global commodity prices. Even the rulers of communist China have embarked upon a program to boost economic activity. Yet, ironically, the inflation hawks in and around the FOMC continue to warn of future price increases. 

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