Fed Remains on Track, Remains Patient

The Federal Reserve had their first meeting of the new year on January 28th. The meeting did not yield too much news as the Fed announced they would stay on track for raising short term interest rates starting this June. The summer of 2015 has been the expected time the Fed would being to raise these short term rates. However, due to recent slowing inflation, many investors feel that the Fed will not raise rates until this fall. These near 0 short term interest rates have held steady for six years as the US economy continues to recover from its greatest recession since the Great Depression. The Fed was overall very optimistic about the economy given solid economic and job growth. These strong numbers coupled with falling oil prices and rising consumer confidence were enough to offset the inflationary concerns, enabling the Fed to keep summer 2015 as their goal. One of the Feds main jobs is to control for inflation. I believe this role will make the Fed wait until the fall to begin raising rates unless something remarkable happens in the next six months. The articles notes, “The Fed’s stated goal is to keep prices rising at an annual rate of about 2 percent, part of its effort to support economic growth and grease the wheels of commerce. But it has not hit that target in more than two years, and it is increasingly unlikely to achieve it this year.” http://www.nytimes.com/2015/01/29/business/federal-reserve-rate-decision.html?_r=0. With the eurozone and emerging markets struggling, their is no need to rush into raising rates. The US has shown strong growth the last couple years and it would be idiotic to rush into things just to “stay on track.” These inflationary concerns are most likely due to falling oil prices and not an overall sign of economic weakness. The Fed is remaining patient and said they will continue to monitor the state of the economy before the rush into a decision. Regarding the long term, the Fed said, “Even after employment and inflation get to their targets, economic conditions, may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” http://www.businessinsider.com/federal-reserve-announcement-january-28-2015-1. This Fed announcement will most likely continue to spur economic growth. If the Fed came out and said they saw signs of economic weakness, that could potentially be detrimental to economic development and consumer confidence. While I never think the Fed would actually say something that frank and blunt, they could have beaten around the bush. Fortunately, they, along with with many experts, view the US economy as strong as it continues its recovery. If the Fed said they thought the economy was doing so well they would start raising rates next month, that could also hurt the US economy and confidence. When the Fed does beginning raising rates, I expect the market to go down as investors becoming frightened about the unknown future. These are uncharted waters the Fed and US economy are navigating right now. Hopefully the Fed has been thinking ahead and is able to raise rates without harming the economy and confidence. Overall, this recent Fed announcement was positive as it indicated the Fed was on track with its plan to raise rates starting this summer.

 

One thought on “Fed Remains on Track, Remains Patient

  1. Guyeon Kim

    This blog post is well-organized and very concise. It is interesting to mention what Fed is doing and what Fed will do in the future. Hopefully see more various perspectives about Fed’s decision – ex) other countries’ reactions or exchange rates.

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