Fed Again Delays Interest Rate Hike

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FED AGAIN DELAYS INTEREST RATE HIKE
Source: HousingWire

The Federal Reserve prolonged the wait for the first interest rate increase in nine years. On Wednesday, the Fed announced that its benchmark rate would remain unchanged at 0-0.25 percent. As a rationale for the decision, a statement from the Fed commented that the country’s economy still has not met the targets laid out by the Federal Open Markets Committee.

Making sense of the story

  • Even after chair Janet Yellen said in June that 2015 would be an appropriate timing for a hike, and inflation was crawling towards the Fed’s 2 percent goal, the labor market’s progress was mixed.
  • The Fed’s hesitancy to raise rates shouldn’t be a surprise, given its repeated reluctance to raise rates in previous meetings.
  • The Fed has not raised interest rates since June 2006.
  • The Fed acknowledged that the pace of job gains slowed, following the past two weaker-than-expected employment reports.
  • Inflation is anticipated to remain near its recent low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further.
  • The Fed will continue to monitor labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
  • The report states, “The pace of job gains slowed and the unemployment rate held steady. Nonetheless, labor market indicators, on balance, show that underutilization of labor resources has diminished since early this year.”
  • The Fed continued, “Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft.”

Category : Blog

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