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I think the distributive consequences of a low fed funds rate is mixed. My guess is that raising the fed funds rate would in practice level the wealth distribution between the ultra rich (who have a lot of equities) versus everybody else who have wealth (who probably have a higher weighting of bonds and bank deposits). Low interest rates are a subsidy to the corporate sector,

But it will mean that pure rentiers with interest income will do better versus wage income - term interest rates will rise (although there would be capital losses on bonds).

Let me throw some ideas in...
If you raise the Fed funds rate, this increases the interest income to the wealthy on financial assets. Stop there... What would happen to stock prices? What would happen to bond prices? What would happen to government debt service? What would happen to housing prices? What would happen to the possibility of a bubble? What would happen to aggregate profit rates? What would happen to the movement of international capital? What would happen to businesses that rely on low wages and low interest rates to survive?
The general answer for the above... the effect is to clean out socially wasteful economics.
Think of grades in a university. The purpose of grades is to show who is a more capable student. But if the standards on grades falls apart, and poor students start getting good grades, how do you know a good student from a bad student. They both end up getting equal chances for employment. Your doctor may not be as good as the grades would reflect. Yet, if the grades were tightened again, some students would be less employable, while some students gain an advantage. but the point is that the good students should gain an advantage and the grades have to be tight to accomplish that.
Many factors need to be tightened, not only the Fed rate. The economic standards of a good balanced economy need to be raised again in many areas. Free market processes have eroded these institutional standards.
We cannot just look at how a rise in the Fed rate would effect creditors and debtors. We also have to look at the quality of those relationships in terms of what is socially beneficial. We have to look at the institutions within which they function. In the final accounting, we have to look at private costs and benefits compared to social costs and benefits.

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Data as of 3rdQ-2018
Effective Demand = $18.433 trillion
Real GDP = $18.671 trillion
Productive Capacity = $24.872 trillion
UT index is at effective demand limit = -0.92%
Effective demand limit = 74.1%
TFUR = 75.1%
ED Fed rate rule = 4.0%
Estimated Natural Real Interest rate = 2.3%
Short-term real interest rate = 2.8%

There is no recession for 3rdQ-2018. Chance of recession is growing as economy has now reached 2nd effective demand limit in this business cycle. I am forecasting that economic conditions will begin to contract in the second half of 2018.

Click on Graphs below to see updated data at FRED.

UT Index (measure of slack):

The UT Index



z derivatives in terms of labor & capital:

z derivatives in terms of labor & capital

Effective Demand, real GDP & Potential GDP:

ED, real GDP & pot rGDP

ED Output Gap:

ED Output gap

Corporate profit rate over real cost of money:

Corp profit rate over real cost of money

Exponential decay of Inflation:

Corporate profits impact Inflation

Measures of Inflation:

Measures of Inflation

YoY Employment change:

YoY employment change

Speed of consuming slack: yoy monthly:

Speed of consuming slack

Speed of consuming slack: quarterly:

Speed of consuming slack quarterly

Real consumption per Employee:

real consumption per employee 2

Will real wages ever rise faster than productivity?:

Productivity & Real Wages



Productivity against Effective Demand limit:

Prod & ED limit

Bottom of Initial Claims?:

Initial claims

Tracking inflation expectations:

Fisher effect?

M2 velocity still falling:

Measures of Inflation

All in one:

All in one

Double checking labor share with unit labor costs & inflation:

My Photo
Edward Lambert: Independent Researcher on Effective Demand. Graduate of Atlantic International University where independent research was developed.
Some links for economic analysis
Fed Views - San Francisco Fed, around 10th of each month.
Well's Fargo monthly - around 10th of each month
Well's Fargo weekly
Well's Fargo Interest rate report
Well's Fargo Economic indicators
T. Rowe Price weekly market wrap-up
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