Fed chair Yellen wants to raise rates "gradually"

Fed chair Yellen wants to raise rates "gradually"

Federal Reserve Chair Janet Yellen said on Thursday that the Fed is planning to raise interest rates, but only gradually. Some Republican lawmakers are calling for her to raise rates more rapidly.

Franck Cushner, financial planner with Ensemble Financial, points out that the Fed raised rates in December by a quarter point, the first increase in nearly ten years.  “The only [way] that a financial services firm or a bank makes money is by loaning money,” he observes.  “So they have their rate, the lending interbank offering rate, LIBOR, which is what they loan to each other at.  And then anything above that is what they loan to the regular public.”

Cushner continues, “When there’s easy money, when the banks—like right now, easy money means low interest rates—then everyone prospers, or theoretically everyone should prosper because money is easy to get.  The only problem is, the banks haven’t been lending money out.”  Lending institutions, Cushner explains, are concerned there might be another financial crisis like the one in 2008.

He points out that loans are going only to borrowers seen by banks as very safe bets.  “They’re only loaning money out to doctors and lawyers who are joining practices,” he notes.  “The rest of us out there, even though they say, ‘Please, apply for a loan!’—we’re not getting it.”  Higher interest rates, Cushner says, will be good for the financial service firms, but he’s not sure about the general economy.

He’s also not sold on tax cuts.  “I’m really surprised that anyone thinks that the tax cuts that the president wants to make—they think this is actually going to help growth?” he asks.  “Well, I’m interested to see how they do that.”  He says 10 years of low interest and easy money has only led companies to buy back their own stock and engage in mergers and acquisitions instead of what he calls “investing in the future.”


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