What’s the point in the Fed having rates if it’s never going to use them?

US Outlook:

Janet Yellen, the Federal Reserve Board chair, testifies in front of US Congress's Joint Economic Committee on Friday (AP)

It’s a year since the Federal Reserve’s chair Janet Yellen (who does not like to be called chairwoman) started suggesting that US interest rates were about to rise. Since then the Fed has hesitated at every meeting, finger on the button but always armed with an excuse for not pushing it. That time is over – rates must rise this month or the Fed will start to look like the boys who cried wolf.

The stock market is pretty much convinced that the cost of borrowing in the US is going to rise when the Fed meets on the 15th and 16th of this month, even if a paltry 25 basis point rise is all that has been priced in. Even so, it is conceivable that the Fed could lose its bottle again and leave rates unchanged, especially if something unexpected – such as another Chinese market crash – happens overseas.

If the Fed is determined to remain cautious to the point of being comatose, it will always find reason not to raise rates. However, if monetary policy is going to be an effective tool to be used in the inevitable event of an economic slowdown, there have to be rates in the first place. You can’t fight recession if rates start at their current level, in effect zero. Rates can’t go negative, although for Wall Street banks they have been for a years; the Fed arguably started paying them to borrow money a decade ago (but that’s another story).

Since taking the helm at the Fed in February last year, Ms Yellen has, so far at least, been the model of caution. That is exactly what the White House wanted when she took over from Wall Street stooge Ben Bernanke – a steady hand at the wheel, nothing in the way of perceived conflicts of interest, and a vast improvement on several of her predecessors. Unlike them, though, her current crisis is self-inflicted. What the Fed has needed over the past 12 months is someone willing to act rather than someone reluctant to do so.

Interest rate hawks, of which there are a growing number outside the Fed but apparently very few inside it, would correctly point to a growing economy that is approaching full employment and supporting enough consumer spending to warrant a rise in the cost of borrowing. Excuses about inflation remaining below the Fed’s 2 per cent target rate are wearing a little thin, particularly as inflation in some areas of the economy (education and rent, in particular) is nothing short of rampant.

Ms Yellen has had a busy week, with not one but two public appearances – one at the Economic Club of Washington and another in front of Congress. She is nothing if not good at hedging her bets, and despite saying that the US economy is “ready” for a first increase in rates since 2006, there was enough caution in her remarks to make the decision on the 16th far from a certainty.

Despite the obvious need to raise rates now, Ms Yellen would presumably argue that her caution is still justified. The US might be a tower of strength, but that is relative to a global economy that is still fragile, to put it mildly. Raising rates when the rest of the world is cutting them should not put her off, though; the US economy is strong enough to handle a marginal rise, and besides, the chances of it being anything more than a quarter of 1 per cent are practically zero.

There is no point in having a central bank that lacks the courage to act like a central bank. The Federal Reserve’s credibility is on the line, and if Ms Yellen decides yet again to do nothing, then so is hers.

Airbnb needs to find some room for real transparency

Airbnb is a “sharing economy” evangelist, a corporation that gets you to share your stuff with strangers while they create absurd valuations for themselves. Something like that anyway. It is making a mint by persuading people to, in effect, turn their homes into hotels with little regard for the regulations or implications.

Whether they are breaking laws or not, Airbnb users in New York aren’t exactly coining it in. According to data released by the company last week (as part of a promise to create an “open and transparent community”), they are making a median annual income from sharing their homes of just over $5,000 (£3,300) a year. In many parts of the Big Apple, that barely covers one month’s rent.

The privately held company, recently valued at a bonkers $24bn, is trying to prove that its users are not breaking any laws and should not be subjected to the same regulations that apply to real hotels. This, in essence, is the basis for its valuation.

However, the data release did little to placate law makers, many of whom are concerned that Airbnb use – there are more than 60,000 listed properties in New York alone – has resulted in less affordable housing and an increase in the illegal use of apartments and homes.

While the vast majority of Airbnb users are making beer money, those who are lucky enough to own multiple properties in New York or can rent out their home are doing much better. According to the data, 127 New Yorkers are making between $100,000 and $350,000 a year in Airbnb rent. That’s a nice windfall for people who presumably don’t need it, but if any are renting their homes for fewer than 30 days a year, they are breaking the law. Not surprisingly, Airbnb declined to release that information.

There is little point in attempting to create an “open and transparent” community if Airbnb isn’t going to be open and transparent. Its data release will probably result in more legal battles – of which it already has many. The New York Attorney General’s office is not easily fobbed off, so unless Airbnb comes clean and releases real data, its battles are far from over.

If it wants to be taken seriously, it needs to prove that its users are obeying the law – sharing or otherwise.