31 May 2010

1937 Again, Again

It is not just fiscal policy which is heading in the wrong direction, influential voices now want monetary policy to retreat from supporting the economy. The OECD wants the UK to start raising interest rates this year and to as much as 3.5% by the end of next year.
Interest rates are lifted to reduce inflation, so where does the OECD think inflation is going?
Inflation is high, but is projected to fall below the 2% target, once the temporary effects of the increase in the VAT rate wane, due to significant economic slack.
No inflation, but raise rates anyway, just in case? I think not.

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