US Fed: No rate hike now, but some time in 2015
June 17, 2015, 6:07 pm

Updated with quotes from Fed chief Janet Yellen (in paragraphs four and five) at 2:35 EST

The Federal Reserve’s central policy-making body said that interest rates will not be increased now, but is looking at some time in 2015 [XInhua]

Leading analysts predict that a policy change will most likely happen in September.

The FOMC said that the US economy has been growing moderately but downgraded GDP growth projection for 2015 to 1.9 per cent. It predicts that unemployment will be 5.3 per cent in 2015, up from an earlier 5.1 per cent forecast.

“The pace of job gains has picked up,” said Fed Chief Janet Yellen, but added that inflation is running below the level preferred by the FOMC at 2 per cent.

She emphasized that “the stance of monetary policy will likely remain highly accommodative for quite some time after the initial increase in the Federal Funds rate in order to support continued progress toward our objectives of maximum employment and 2 per cent inflation”.

Markets had been hoping for an announcement Wednesday that the Fed’s FOMC would say that the US economy has sufficiently pulled back from the sub-prime mortgage crisis of 2008 when interest rates were lowered to near-zero levels in a stimulus bid.

Some Fed critics have said that there hasn’t been a rate hike in 10 years. Between 2004 and 2008, interest rates peaked and then fell as the Fed tried to boost consumer confidence to keep the wheels of industry, productivity and investments grinding amid a global financial crisis.

The Fed’s quantitative easing program to buy back $85 billion worth of bonds was gradually tapered as the US economy strengthened and unemployment fell until it was terminated in summer 2014.

For example, the US economy added 285,000 jobs in May, the US Labor Department reported, beating market expectations of 222,000 jobs.

Although the unemployment rate rose from 5.4 to 5.5 per cent, the high number of added jobs in May appeared to indicate that the economy was back on momentum after disappointing first quarter GDP growth.

The US economy shrunk by 0.7 per cent in the first quarter, largely due to a slowing attributed to heavy snowfall, analysts said.

But the overall picture of an improving economy which has pulled back from recession makes near-zero interest rates no longer feasible, some market analysts argue.

The FOMC policy decision will have far-reaching impact in the US and around the world. Domestically, it will affect how consumers can borrow money to pay for mortgages, car purchases, etc. Globally, it will help multinational corporations decide worldwide investment policies, which could affect how much foreign capital flows in – or out – of emerging markets.

The BRICS Post