US rate hike not on the cards, says Nobel laureate

Paul Krugman said the US Federal Reserve was unlikely to raise interest rates next year as it struggles to meet its inflation target.

The Nobel laureate Paul Krugman said the US Federal Reserve was unlikely to raise interest rates next year as it struggles to meet its inflation target and global economic growth remains weak.

“When push comes to shove they’re going to look and say: ‘It’s a pretty weak world economy out there, we don’t see any inflation, and the risk if we raise rates and turns out we were mistaken is just so huge’,” Mr Krugman said in Dubai on Sunday.

“It’s certainly a real possibility that they’ll go ahead and do it, but probably not.”

Top Fed officials said this month they expected the drop in oil prices to spur domestic consumption, playing down the risk that it could push inflation further below the central bank’s 2 per cent goal.

Mr Krugman, however, said he agreed with signals from financial markets suggesting that policymakers will delay raising borrowing costs.

US Treasuries rallied, with 10-year yields falling the most since June 2012 on Friday, while bond yields showed five-year inflation expectations fell to the lowest since 2010.

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Published: December 14, 2014 04:00 AM

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