Fed Rate Increase --- What Choice Did They Have?

I love hearing all the jabberwocky about the decision of the Fed to push up interest rates, as if they had a lot of choice. The fact of the matter is that the Fed is responding to the weakening of foreign demand for treasuries at a time of continued large scale financing needs of the federal government (military Keynesianism is the growth philosophy of this administration -- take away the war budget and recent U.S. economic growth, the so-called jobless recovery, evaporates). The biggest risk to the gradual upward movement of rates is the Chinese government, which must feel quite put upon by all the anti-Chinese rhetoric coming out of the U.S. Congress and some segments of the corporate controlled media these days. The Chinese administration could, if they wanted to, force the Fed to accelerate the upward movement of interest rates. They probably won't do this. The current Chinese leadership, pragmatic Marxists all, are not prone to drastic moves, but rather to gradual experimentation. They are currently reassessing a decision to pursue a corporate finance strategy to upgrading Chinese firms into full-fledged transnationals, after the uproar over CNOOC making a bid for Unocal (whose assets are largely in Asia!) and other such bids. Haier even called off its bid for Maytag. I suspect they may use their cash horde to buy European and "Third World" assets instead, and perhaps might even make a foray or two into the former CMEA arena, including Russia. But U.S. shareholders may lose out, both because Chinese firms will be more reticent to buy in this country and because the general environment (high interest rates, high commodity prices, a corrupt political leadership in Washington, a continued shift of domestic employment towards lower paid service jobs, etc.) will lead equity prices lower in the not too distant (post summer euphoria) period.

Okay, enough of my own jabberwocky. Here is the link to the Fed's own interpretation of why they raised the target for the fed funds rate to 3.5%.