ARI SHAPIRO, HOST:
Wild movements on Wall Street today. The Dow opened down more than a thousand points, and after a day full of ups and downs, it closed down nearly 600 points. All this is happening at a historic moment. The Federal Reserve stands poised to raise interest rates after keeping them lower than they've ever been for quite some time. Now some prominent economists are raising a red flag. They think raising rates now could be dangerous for the U.S. economy. Here's NPR's Chris Arnold.
CHRIS ARNOLD, BYLINE: Stocks were in a full-on freefall this morning. The Dow has never fallen a thousand points in a day and close there. But where some investors see panic, others see opportunity. CNBC had reporters on the floor of the New York Stock Exchange watching Ford Motor Company stock plummet and then bounce back.
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UNIDENTIFIED MAN: Ford dropped rather dramatically at the open, and then there was massive amounts of buying as people just came in - rushed to buy it. The indication of just how crazy things are...
ARNOLD: One big thing that's scaring some investors is China. Growth in the world's second-largest economy is slowing more than anybody expected. That could mean trouble for the economies of many other countries.
MARK ZANDI: Right, and this is in the middle of the Fed trying to make a decision about whether to begin to raise short-term interest rates.
ARNOLD: That's Mark Zandi, chief economist of Moody's Analytics.
ZANDI: They're now at this historic point in time, and now this happens.
ARNOLD: Zandi explains that the Fed has had interest rates down near zero since 2008.
ZANDI: Zero interest rates have never happened. The Fed's never had to push rates this low.
ARNOLD: The Fed's been doing that, of course, to try to help boost the economy. Low interest rates make it easier to buy a house or a car or even build a factory or an office building. But the Fed doesn't want to stay in crisis mode forever if it doesn't have to. Zandi says zero interest rates for too long could cause another housing market bubble, for example, or runaway inflation.
ZANDI: Nobody wants that, and the Fed's worked really hard to convince everybody that they're on the ball when it comes to inflation.
ARNOLD: But now we've got this stock market correction and new concerns about China and the global economy. And some experts are warning that the Fed should not take its foot off the stimulus gas pedal by raising interest rates. Former U.S. Treasury Secretary Larry Summers weighed in today with an opinion piece in the Financial Times. He said raising rates now would be a, quote, "dangerous mistake." So those are strong words from a former treasury secretary, but other economists say, well, wait, this depends. Randall Kroszner is a former member of the Federal Reserve Board of Governors.
RANDALL KROSZNER: The Fed has another month before it needs to make the decision, so I would get focused on trying to understand - is this just a short-term movement, or is this a fundamental change?
ARNOLD: In other words, the Fed can't react to every correction in the stock market, but if there's some fundamental slowing of the world economy, then maybe the Fed should wait. Larry Summers definitely sees a fundamental change. He says we're in a new normal, where the Fed needs to keep interest rates near zero, perhaps for another decade, but Mark Zandi disagrees.
ZANDI: No. I mean, look, we're creating 200,000-plus jobs per month, and we've been doing that for almost three years. The U.S. economy feels quite strong to me. You know, you don't want zero interest rates for too long.
ARNOLD: Either way, in September, the Federal Reserve will decide whether it's time to reset the sales on the U.S. economy a bit and start raising interest rates, even if that starts to take a bit of wind out of those sails. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.
