Is the economy in danger of overheating?

[pscot]

Some Fed members seem to think so. They dismiss high unemployment and the crisis in the Euro. The time to address the next crisis is now. These are the guys Krugman has been warning us against.Thomas Hoenig of the Kansas City Fed want to raise the Fed rates gradually to 4.5%.

...Hoenig is hardly alone. Earlier Thursday, Dennis Lockhart, the president of the Atlanta Fed Bank, said "the time is approaching" for higher interest rates. He stressed that the Fed might have to move even if "unacceptable levels of unemployment" exist. And late last week, Jeffrey Lacker said he was growing uncomfortable with the Fed's statement that conditions will require exceptionally low rates for an extended period....


Hoenig believes that low interest rates are dangerous to the outlook and have had a "high cost" in the past. He said the financial crisis stemmed from the Fed's decision to maintain very low interest rates between 2003 and 2004.

"We are attempting to support an economic recovery, but in doing so, also avoid fostering the next crisis. I have no illusions about the challenges of moving away from zero. But in my judgment, the process should begin sooner to avoid the danger of having to over compensate later," he said....


"More recent data suggest that the recovery is more broad-based and self-sustaining, and perhaps even stronger than anticipated," Hoenig said. There are "clear signs that the process of job creation is taking hold."

The Kansas City Fed president did not sound especially worried about inflation in the short term. He said inflation would likely remain near 1% for the next year or so, but then drift higher.

http://www.marketwatch.com/story/drumbeat-for-fed-rate-hike-gets-louder-2010-06-03

[bluestateguy]

1. Come talk to me when we have 7-8% GDP

Until then, I don't want to hear it.

[pscot]

3. That's the crisis we need to avoid

You know how pushy the workers get when the demand for labor is strong.

[SocialistLez]

2. Wouldn't it have to be WARM for us to consider overheating?

Our jobs report was awful.

[damntexdem]

4. Brrr, chatter, it's so cold. Overheating? Don't think so.

But check back when hell freezes over.

[dmallind]

5. Now THAT's optimistic

Since anything that even hints at even slow recovery is seen as moronic and Panglossean by much of DU it is nice to see what extremely optimistic views REALLY look like.

I see no risk for inflation as a problem in the upcoming year or two. Sure there's plenty of latent cash out there but more in the I sector than the C. Obviously interest rates will go up again at some point but there's plenty of room to keep them historically quite low for some time. I'm not a Fed member of course and have neither their inof nor their expertise, but I just don't see it.

[pscot]

6. Even Hoenig doesn't see much inflation coming

It's hard to figure out what his rationale is. Maybe he just thinks bankers aren't making enough money.