When to raise rates: the Fed's exquisite dilemma

There is no inflationary pressure, which makes it hard to justify tightening policy

Federal reserve
(Image credit: Chip Somodevilla/Getty Images)

Monetary policy, in as much as it relates to the setting of interest rates, is often thought of as the counterpart to inflation. High rates are used to quell demand when prices rise too fast; low rates to incentivise spending when prices stagnate or fall.

But recent debates on whether or not interest rates should rise – at a time when, the Financial Times notes, the world is "singularly short of inflationary pressure" – show there is much, much more at stake.

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