WASHINGTON (10/29/15)--With the Federal Reserve again opting to keep interest rates at their near-zero levels Wednesday, the once-strong economic momentum that appeared to signal that the Fed would hike rates this year may have all but evaporated.
Though, the Federal Open Market Committee (FOMC) did leave the door open for a rate hike at its December meeting--the last meeting of the year.
In its policy statement, the Fed said it has become less concerned about the international economy, and, in a first for the committee, the FOMC said it would take up the issue at its next meeting.
No previous statement has explicitly stated a time frame for when it would begin considering hiking interest rates (MarketWatch Oct. 28).
Still, economists believe there is evidence the FOMC will hold off until 2016 before hiking interest rates.
“The main reason for this, is that inflationary pressures are missing despite falling unemployment and continued economic expansion,” Perc Pineda, CUNA senior economist, told News Now. “This tells us that it is the pace of U.S. economic growth that is key--not simply positive growth in quarterly gross domestic product.”
Pineda also framed the impact raising interest rates will have once the FOMC finally chooses to push them higher--whether it be December or next year.
“At some point, the rate will definitely increase, assuming the economic growth picks up pace,” Pineda said. “Whatever the Fed does will have an announcement effect, but it can only affect changes on the economy indirectly and with lags.”
Furthermore, Pineda identified a number of positive areas in the economy that could give the FOMC the ammunition it needs to pull the trigger in December.
“There are bright spots in our economy that should support continued economic expansion,” Pineda said. “Recent housing market numbers overall are encouraging; improving retail sales and strong auto sales will continue.”
On the other hand, weak economies outside the United States are causing the U.S. dollar to strengthen, Pineda added.
“And it is weighing on manufacturing and trade,” he said. “Total trade--exports and imports combined--makes up roughly 29% of the U.S. economy. Low commodity prices due to weak demand outside the United States are affecting the balance sheets of U.S. industries sensitive to such down trends.”