Professor Doubts Fed Strategy

Raghuram G. Rajan,a finance professor at the University of Chicago Booth School of Business and a former IMF Economic Counselor,is raising doubts about the Federal Reserve's plan for dealing with the lagging economy.The Fed wants to keep interest rates at zero for an extended period.We have very high levels of debt.It's not the rate that matters;it's the access.We've had negative real rates,penalizing savers.We need labor-intensive stuff,not capital-intensive.
The costs of such a policy start mounting-without sustained benefits.There's only so much you can do with interest rates.We have to start talking about structural changes such as retraining.Demand is part of the problem,but we also have supply problems.Let's move away from doing more to doing what actually works.
Buying more assets without a clear exit plan is dangerous.We've got to start somewhere.We need to experiment.The big issue with stimulus is,we often overplay the situation,because everyone loves to spend money,Dr.Rajan observed.
Dr.Rajan is the author of "Fault Lines:How Hidden Fractures Still Threaten the World Economy," published by Princeton University Press.