The Federal Reserve has decided to keep interest rates near zero while they continue to assess slower global growth on the domestic economy, since there was a perceived lack of confidence in the strength of the domestic economy. This decision came as no surprise to many investors.
However, there is a bit of good news: The Fed expects to raise rates later this year. Thirteen of the seventeen members think rates will raise 0.25 percent, and some even predicted a larger increase. The Fed Chairwoman, Janet Yellen, said it was a close call as to raise the rate at current moment. She said one of the major reasons why the rate wasn't raised was because of concerns over China's economy and slower growth in other foreign economies.
Another good takeaway from the announcement is that Fed officials are convinced labor market conditions have nearly returned to normal, and they predict unemployment will stop falling when it hits 4.8 percent.
Even though the Fed says they'll raise interest rates soon, could China's worsening economy derail the plans? And will unemployment really stop falling once it reaches 4.8 percent?
http://www.nytimes.com/2015/09/18/business/economy/fed-leaves-interest-rates-unchanged.html?_r=0
7 comments:
I think the Fed should hold off on raising rates because raising them too early would have bigger consequences than raising them too late. I would recommend closely watching measures of inflation, being sure to have indicators that are not oil sensitive (since this economic cornerstone is so inexpensive right now).
When do you think they should raise them, then? The last time the Fed raised interest rates was in June 2006 (http://www.nytimes.com/interactive/2015/business/economy/fed-interest-rates.html), which was quite a while ago. I mean, I'm not sure when they should be raised, so I'm just curious. I think watching inflation is a really good idea, though.
Personally, I think that the Federal Reserve should have decided to raise interest rates this September. Currently, we are in a time of economic expansion (2 or more consecutive quarters of increased economic growth in real GDP) and interest rates are able to remain low because consumer confidence is high and in turn, the economy is spending money. But, if for some unknown reason, the economy takes a sudden downturn and consumer confidence plummets - causing a drop in real GDP - then the Federal Reserve will not have the ability to lower interest rates to help fuel expansion. In my opinion, a small increase in interest rates would not harm the economy too much. With such a high consumer confidence (101.5 (1985=100) as of August 2015), the economy will continue to spend money rather than save and the Federal Reserve will have a buffer to help save the economy in the future.
I think the US economy is recovering but not good enough for the federal reserve to rise interest rates, so the Fed is still waiting and want people to spend more to increase growth. The inflation rate is still below what the Fed expects.
I agree with Kaley that the Federal Reserve should have raised interest rates, as the economy was expecting. Everyone was anticipating the raise, and consequently were acting upon those notions. I support the idea of The Fed raising them sooner rather than later considering the current economic status (economic expansion) and the predictions of the last decision. Also, having interest at a low rate reduces the incentive to save for retirement and the down payment on a house. In times like these shouldn't we, (our generation specifically), be worried about saving for retirement? An easy solution would be to raise the interest rate while raising inflationary expectations.
I agree with both Sophia and Kaley. The economy has been quite strong, and there have been some expectations of a rise in interest rates. Higher interest rates equal a strong economy. And having strong interest rates equal more saving, and like Sophia brought up, lower rates mean more savings.
One thing I'm concerned about is those who say we should be waiting to raise the rates. Waiting until when? A year? Two years? If we keep thinking we should wait, rates will not go up, and that could cause more issues.
I think Sophia made a great point in that our generation should be especially concerned about saving for retirement. Student debt is a huge topic of conversation in today's US which means we will most likely have to work later in our lives in order to retire. By raising the interest rates, the generation that is currently joining the labor force would benefit tremendously and the older generations would as well, especially considering the current strength of the economy.
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