Narayana Kocherlakota of the Minneapolis Fed gave an interesting speech on Tuesday that sets out a case for thinking that the Fed might need to raise interest rates sooner rather than later, perhaps even before the end of the year.
It reflects an evolution from the labour market “mismatch” that he was talking about a couple of years ago (a lot of research has failed to turn up much geographic or skills mismatch) to a view, espoused by various people in various different ways, that there may have been a one-off downward shift in potential output. That means a smaller output gap and hence an earlier rise in interest rates.
But is Mr Kocherlakota’s argument convincing? Read more