{"id":8171,"date":"2015-02-24T19:15:23","date_gmt":"2015-02-25T01:15:23","guid":{"rendered":"http:\/\/news.medill.northwestern.edu\/chicago\/?p=8171"},"modified":"2015-02-24T19:23:30","modified_gmt":"2015-02-25T01:23:30","slug":"senator-challenges-yellen-on-interest-rate","status":"publish","type":"post","link":"https:\/\/news.medill.northwestern.edu\/chicago\/senator-challenges-yellen-on-interest-rate\/","title":{"rendered":"Senator Challenges Yellen on Interest Rate"},"content":{"rendered":"

By Lucy Ren<\/p>\n

\u201cThe financial and economic crisis has been over for at least six or seven years,\u201d\u00a0Senator Pat Toomey (R-Pa.) said in the Senate Banking Committee hearing on Tuesday, opposing the Federal Reserve’s sustaining \u201ccrisis level interest rates.\u201d<\/p>\n

Toomey laid out a list of evidence supporting his statement, including low unemployment, the absence of a \u201cwave of defaults or massive bankruptcies,\u201d relatively high consumer sentiment and \u201csolid\u201d economic recovery specified by FOMC.
\n
\n

\"Senator<\/a>
Sen. Pat Toomey (Wikimedia Commons)
<\/figcaption><\/figure>Furthermore, Toomey said, Wal-Mart\u2019s announcement to raise its hourly wage \u201csuggests we might be approaching NAIRU,\u201d or non-accelerating inflation rate of unemployment.<\/p>\n

BBVA Compass economist Shushanik Papanyan said in an interview her company estimates that the unemployment rate will approach NAIRU in 2016, mostly \u201cbased on analysis of the potential GDP, and the declining long-run unemployment rate.\u201d<\/p>\n

Toomey also urged the Fed to consider the impact of savers\u2019 losing their purchasing power. \u201cIt\u2019s not as though there\u2019s no price to be paid by having this unbelievably accommodative policy,\u201d Toomey said. Regarding the near-zero interest rate that has been kept for the past six years, Toomey raised the concern of people \u201cwho may have spent the lifetime working hard\u201d to use the savings to supplement a modest pension or Social Security payments. \u201cOf course, their reward now is that they get nothing, zero, that\u2019s what they earn on their savings, year after year.\u201d<\/p>\n

He questioned the Fed for aiming for 2 percent inflation, since the rate will cause savers\u2019 losing 2 percent of their savings annually.<\/p>\n

RELATED: Labor market not ready for interest rate hike, Janet Yellen says. Full Story.<\/a><\/div>\n

In response, Federal Reserve Chairwoman Janet Yellen attributed the 2 percent goal for inflation to the \u201cupward biases in price indices\u201d and the danger of deflation.<\/p>\n

Substitution bias, one of the upward biases that Yellen referred to, arises if consumers change their purchasing behavior in response to relative price changes.<\/p>\n

\u201cAs prices increase, people would start to substitute expensive goods for cheaper goods,\u201d Papanyan explained, \u201cand that effect is not counted in the prices indices, and thus inflation indices would overestimate the actual expenses.\u201d<\/p>\n

\u201cAn environment with extremely low interest rate makes it difficult for monetary policy to response to upward shocks,\u201d Yellen said, regarding the danger of deflation. \u201cIn order to avoid damaging episodes of deflation, it\u2019s wise to have a small buffer that gives greater room for monetary policy to operate.\u201d<\/p>\n

Yellen will testify before a House of Representatives committee on Wednesday.<\/p>\n

The Standard & Poor\u2019s 500 Index rose 0.28 percent to 2115.48 on Tuesday, hitting new record high.<\/p>\n

Photo at Top: The Federal Reserve is the central bank of the U.S. (Creative Commons)<\/div>\n","protected":false},"excerpt":{"rendered":"

By Lucy Ren \u201cThe financial and economic crisis has been over for at least six or seven years,\u201d\u00a0Senator Pat Toomey (R-Pa.) said in the Senate Banking Committee hearing on Tuesday, opposing the Federal Reserve’s sustaining \u201ccrisis level interest rates.\u201d Toomey laid out a list of evidence supporting his statement, including low unemployment, the absence of […]<\/p>\n","protected":false},"author":29,"featured_media":8201,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[27,243],"tags":[],"class_list":["post-8171","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-winter-2015"],"yoast_head":"\nSenator Challenges Yellen on Interest Rate - Medill Reports Chicago<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/news.medill.northwestern.edu\/chicago\/senator-challenges-yellen-on-interest-rate\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Senator Challenges Yellen on Interest Rate - Medill Reports Chicago\" \/>\n<meta property=\"og:description\" content=\"By Lucy Ren \u201cThe financial and economic crisis has been over for at least six or seven years,\u201d\u00a0Senator Pat Toomey (R-Pa.) said in the Senate Banking Committee hearing on Tuesday, opposing the Federal Reserve’s sustaining \u201ccrisis level interest rates.\u201d Toomey laid out a list of evidence supporting his statement, including low unemployment, the absence of […]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/news.medill.northwestern.edu\/chicago\/senator-challenges-yellen-on-interest-rate\/\" \/>\n<meta property=\"og:site_name\" content=\"Medill Reports Chicago\" \/>\n<meta property=\"article:published_time\" content=\"2015-02-25T01:15:23+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2015-02-25T01:23:30+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/s3.amazonaws.com\/medill.wordpress.offload\/WP%20Media%20Folder%20-%20medill-reports-chicago\/wp-content\/uploads\/sites\/3\/2015\/02\/Federal-Reserve-Note.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1100\" \/>\n\t<meta property=\"og:image:height\" content=\"825\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"lucyren7\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"lucyren7\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/news.medill.northwestern.edu\/chicago\/senator-challenges-yellen-on-interest-rate\/\",\"url\":\"https:\/\/news.medill.northwestern.edu\/chicago\/senator-challenges-yellen-on-interest-rate\/\",\"name\":\"Senator Challenges Yellen on Interest Rate - 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