0.25%

Let's face it: adding a quarter per cent to the Federal Funds Rate is no big deal.  Yes, the greedy bankers, as expected, are raising their prime rates — making some loans more expensive — while letting interest rates on CDs and savings accounts stay the same.  They're increasing prime because they can.  They're leaving the interest they pay low for the same reason: because they can.

Really, though, the change is minimal.  Granted, the increase really wasn't justified by higher inflation, because inflation remains very low.  Some think the Fed was anticipating higher inflation based on possibly higher oil prices in the future, but as long as everywhere in the world except the USofA is stuck in slowdown, oil prices will stay low.  So why the increase in the rate?

Mostly, I believe, as an indicator that the recovery really is happening, and because its impact is beginning to be seen in wages as well as asset values.  If the Fed succeeds in instilling greater confidence, it may be that corporations will begin investing their very substantial profits in expanded production, rather than in mergers, acquisitions, and stock buybacks.

If rate increases come as slowly as Dr. Yellen has suggested, no economic slowdown need be anticipated, and the Fed will begin to regain some of the leverage it needs to respond to future crises.

Yellen or Summers?

In a front page article, today's Times suggests there are "some gender overtones" stirring in Obama's choice to be the next chair of the Federal Reserve.  Personally, I'm pulling for Janet Yellen, but not because I think it's time for a woman to be at the helm.  It's because I think Lawrence Summers is a terrible choice.

Back in the Clinton administration, Summers, along with his guru Robert Rubin, was instrumental in talking Clinton into signing the Gramm-Leach-Bliley Act into law.  In case you've forgotten, that's the one that overturned Glass-Steagle, encouraged already large financial firms to transform themselves into too-big-to-fail behemoths, and made the 2008 financial crisis inevitable.

Why oh why would Obama want to install one of the architects of too-big-to-fail as the single most important regulator of the fat cat firms?  Could it be because Wall Street wants him there?

Janet Yellen, we are told, was an important voice in Bernanke's ear, encouraging expansionary monetary policy.  As head of the Fed, she is unlikely to tighten up too soon — and it's pretty clear that she would continue quantitative easing and low interest rates for as long as they're needed.  Well, they're still needed.

The last thing we need is the return of the Rubinites.