Fed still holds off on rate increase
WASHINGTON (7/30/15)--Citing “moderate” economic expansion, the Federal Open Market Committee continues to do “a balancing act,” said CUNA Senior Economist Perc Pineda.
The Federal Reserve’s monetary policy-making body completed its meeting Wednesday without edging up the federal funds interest rate. Fed Chair Janet Yellen has said the committee will opt for an interest-rate increase sometime this fall. The July meeting, however, was not the time.
“The Federal Reserve continues to do a balancing act: the U.S. economy is not in a recession and definitely not overheating,” Pineda told News Now. “Changes in monetary policy after all are meant to influence an underperforming or an overheating economy.”
Household spending growth has been moderate, and housing has shown additional improvement, the committee said. Labor conditions continue to improve with declining unemployment and solid job gains.
Inflation is anticipated to remain near its recent low level in the near term, but the committee expects it to gradually rise to 2% over the medium term.
“The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run,” it said in its statement at the conclusion of Wednesday’s meeting.
Pineda said, “My sense is that raising federal funds rate is really a continuation of the gradual normalization of monetary policy that started last year with the end of quantitative easing (QE). If you look at the trend, monetary base has started to decrease last year when QE ended. We at CUNA had said before that a rate lift-off may have some ‘announcement effect’ but definitely is not going to stall U.S. economic expansion.”
The baseline forecast is for the Fed to begin normalizing interest rates in September--the first of two increases this year--by raising the target range for the fed funds rate to between 0.25% and 0.5% from between 0% and 0.25%.
“If the Fed doesn’t begin normalizing interest rates in September it will be because of low inflation or strains in global financial market,” said Moody’s analyst Ryan Sweet (Economy.com July 29).
The committee next meets Sept. 16-17.