Fed Makes Move that Signal at Rate Rise
The United States central bank, The Federal Reserve (The Fed), appears to have made moves that edge it ever closer to raising the interest rates that have been kept at 0% since 2008.
After a two day meeting, The Fed announced that borrowing costs would remain at the same rate for the time being, at 0 to 0.25%, but it did upgrade its assessment of the state of the American economy in which it said:
“Economic activity has been expanding at a solid pace, labour market conditions have improved further, with strong job gains and a lower unemployment rate.”
In contrast to this however, Fed chair Janet Yellan has stressed that, with oil prices continuing to fall at a fairly rapid rate, she would like to see inflation inch closer to its 2% target mark before implementing an interest rate rise.
There is debate amongst the economic community as to how and when a rate rise should be implemented in the United States with many seeing the upbeat terminology used by the Fed as a signalling of a shift of intent on when a rate rise could happen although many, likeNobel prize winner Paul Krugman, feel another rise could yet be pushed back until next year which he confirmed when he said:
“When push comes to shove, they’re going to look and say: ‘It’s a pretty weak world economy out there, we don’t see any inflation, and the risk if we raise rates and it turns out we were mistaken is just so huge.’”
In last month’s Fed meeting, although it was decided that a rate rise would not be introduced, the decision was not unanimous which was different this month when chairs of regional federal banks voted. This would suggest that a rate rise is still a little way off yet although change does appear to be on the horizon.
With an annualised growth of 5% in the last quarter of 2014, United States growth beat all expectations and signalled that the economy and associated recovery are far stronger than many had suspected. The Federal Reserve has already ended a stimulus programme it implemented to aid in the recovery and is now just waiting for a time they see fit to introduce a rise in the base rate of interest.