Header Image

CPD In the News

| Building a National Campaign for a Strong Economy: Fed Up

Fed votes to keep key interest rate near 0%, stays mum on future hike

Federal Reserve policymakers Wednesday voted to keep the central bank’s benchmark interest rate near zero percent and offered no new hints of when it would enact the first hike since 2006.

After a two-day policy meeting, officials released a monetary policy statement that was little changed from June in its guidance about what they would need to see before raising the interest rate.

11:40 a.m.: An earlier version of this article said the Fed's policy statement was identical in its guidance about what officials would need to see before raising the interest rate. The statement contained a small wording change.


An increase would come when members of the policymaking Federal Open Market Committee have “seen some further improvement in the labor market” and is “reasonably confident” that the low inflation rate will move back toward the Fed’s 2% annual goal in the near future, the statement said.

The statement, approved by a 10-0 vote, left open the possibility of a rate hike after the Fed’s next meeting, in September. But it did not lock policymakers into taking that step in case upcoming economic data, including jobs reports for July and August, indicate the economy isn’t strong enough to handle higher interest rates.

The Fed said recent data suggest the economy “has been expanding moderately in recent months” and that the housing market “has shown additional improvement.” The Fed’s view of the labor market improved, with the statement saying there had been “solid job gains and declining unemployment.”

But Fed policymakers raised concerns about what they called soft business investment and exports.

And the statement noted inflation continued to run well below the Fed’s 2% annual target, attributing that partly to declines in energy prices as well as the lower cost of imports caused by the rising value of the dollar.

For the 12 months ended May 31, the price index for personal consumption expenditures, the Fed’s preferred gauge, was up just 0.2%.

The central bank has kept its benchmark federal funds rate near zero since December 2008 in an attempt to boost economic growth during and after the Great Recession.

As the economy has strengthened, pressure has built on Fed policymakers to start raising the rate.

Fed Chairwoman Janet L. Yellen has said that she expects an interest rate hike this year but that policymakers would continue to keep rates low for “quite some time” to continue providing support for the economy.

A survey last month by financial information website Bankrate.com found that a majority of Wall Street experts expected the Fed to raise its short-term interest rate in September.

Fed policymakers are closely watching economic data to determine when to hike the rate for the first time since 2006.

The economy shrank at a 0.2% annual rate from January through March, largely because of unusually bad winter weather and a labor dispute that slowed activity at West Coast ports.

The Commerce Department is expected to report Thursday that growth returned this spring. Analysts are forecasting that the economy expanded at a 2.9% annual rate in the second quarter.

The job market has shown solid gains in recent months, and the unemployment rate in June dropped to 5.3%, the lowest in more than seven years.

But wage growth has been sluggish. The Center for Popular Democracy has criticized the Fed for not focusing enough on wage improvements as a key factor in deciding when to raise rates.

And even with the overall economy performing better in the second quarter, growth this year is expected to be subpar. The Fed’s most recent projection, made in June, is for overall economic growth of just 1.8% to 2% for the year, which would be the worst since 2011.

Source: The Los Angeles Times