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Politics

Prof. Nicholas Economides on Federal Reserve’s Pause on Rate Hikes

March 7, 2019

NEW YORK – The Federal Reserve continues its pause on rate hikes so far this year which is viewed favorably by the stock market, according to Nicholas Economides, Professor of Economics at New York University’s Leonard N. Stern School of Business. He shared, via email, three main points about the pause in rate hikes:

  1. The Fed is taking a “wait and see” policy on interest rates and unwinding its holdings, since economic growth is predicted a bit lower than earlier.
  2. The Fed has vast holdings of Treasuries and Mortgage Securities. It is likely that it will unwind the mortgage securities first, thereby reducing the impact of the unwinding on the Treasuries market.
  3. Likely only one rate increase this year.

The National Herald asked Prof. Economides to expand on the three main points. He told TNH, “The Federal Reserve has been buying U.S. Government bonds since the 2008 crisis. This had the effect of keeping short term interest rates very low. In a parallel action, the Fed has been buying mortgages, thereby keeping mortgage interest rates low. Late last year, the Fed proposed to start selling bonds, which would quickly raise interest rates. Because this action was seen negatively by the stock market, the Fed retreated and postponed the unwinding of its bond portfolio.”

Prof. Economides continued, “So, presently the Fed is not increasing interest rates, but rather has adopted a ‘wait and see’ attitude, looking at the state of the U.S. economy before taking any action to increase interest rates.”

“This is seen favorably by the stock market. I expect that interest rates to stay stable in the short term,” he concluded.

Prof. Economides is an internationally recognized academic authority on network economics, electronic commerce and public policy. His fields of specialization and research include the economics of networks, especially of telecommunications, computers, and information, the economics of technical compatibility and standardization, industrial organization, the structure and organization of financial markets and payment systems, antitrust, application of public policy to network industries, strategic analysis of markets and law and economics.

Prof. Economides has published more than 100 articles in top academic journals. He holds a PhD and MA in Economics from the University of California at Berkeley, as well as a BSc (First Class Honors) in Mathematical Economics from the London School of Economics. Previously, he taught at Columbia University (1981-1988) and at Stanford University (1988-1990). His website on the Economics of Networks has been ranked as one of the top four economics sites worldwide by The Economist magazine.

Prof. Economides is Executive Director of the NET Institute, www.NETinst.org, a worldwide focal point for research on the economics of network and high technology industries.

He has advised or is advising the U.S. Federal Trade Commission, the governments of Greece, Ireland, New Zealand and Portugal, the Attorney General of New York State, major telecommunications corporations, a number of the Federal Reserve Banks, the Bank of Greece, and major Financial Exchanges. He serves on the Advisory Board of the Economist Intelligence Unit. He has commented extensively in broadcast and in print on high technology, antitrust, and public policy issues.

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