News Tip: ‘Gently’ Raising Interest Rates Good for Economy, Expert Says

Will also improve ability to stimulate economy if another crisis develops, says economics professor Connel Fullenkamp

The Fed is considering raising its benchmark interest rate one-quarter of 1 percentage point, possibly in September.•    Quotes: "Although inflation is still markedly under 2 percent and it's not clear whether the U.S. economy's wobbly recovery is finally straightening out, it's still high time that the Fed starts the process of normalizing interest rates,” says Duke University economics professor Connel Fullenkamp. “The global financial markets have far too much liquidity sloshing around in them, which has been fueling asset volatility in property, commodities and equities. Raising rates won't actually reduce that excess liquidity in the short term, but it's the first step toward doing so over the longer haul.”“In addition, interest rates haven't been allowed to perform one of their most important roles in years -- serving as a credible signal to guide borrowing and investment decisions. The markets need interest rates that reflect the true underlying credit risk of governments and companies, so that we don't fuel another borrowing bubble.”“Rates are still so low now that raising them gently really won't make a big difference in economic growth anyway. But if we begin raising rates smoothly and consistently now, we stand a much better chance that monetary policy will be able to stimulate the economy the next time we really need that kind of help." •    Bio:Connel Fullenkamp is a professor of the practice and director of undergraduate studies in the economics department at Duke University. He specializes in economic policy, financial market development and regulation of financial markets. He has been a visiting scholar and consultant at the IMF Institute of the International Monetary Fund in Washington, D.C., since 1999. •    Archive video interview (different subject):•    For additional comment, contact Fullenkamp at:cfullenk@econ.duke.edu