Rate Rise Unlikely Before April
The central bank of the United Sates, The Federal reserve (The Fed), has said that a rate rise was unlikely before April as the country looks to shore up its economy before moving forward.
The benchmark short-term federal funds interest rate has sat at around 0% since late 2008 when the economic crisis hit the United Stated. This was an attempt to help boost the economy along with quantitive easing measures.
With the economy now growing with gusto and jobs being created at a steady rate, many had speculated that a rate rise could be on the cards sooner than first thought but, during their last meeting in December 2014, the Fed has dismissed this unlikely to happen before their next meeting on the subject which would be in April. However, there have been worries that international factors could affect the domestic recovery as the minutes from the meeting read:
“Many participants regarded the international situation as an important source of downside risks to domestic real activity and employment.”
With trading partners such as China and the European Union seeing a slowdown, this may affect the US economy but around two thirds of its production relies on domestic demand so it may not be as problematic as first thought with good growth domestically.
Investors see the low rate as a boost for them as it is cheap money and helps them with their financial goals but a low rate could hurt growth in the long run if not monitored carefully. Some investors may feel a little ‘jittery’ at the prospect of a rate rise so news that this won’t be happening any time soon will have cheered markets considerably with US shares rising initially after the news was announced.
The Federal Reserve chairman, Janet Yellen, explained earlier in 2014 that “patient” meant the bank was unlikely to raise rates for “at least a couple of meetings” and if to be taken literally that would mean a rate rise wouldn’t come until at least April next year. Ms Yellen said in her statement:
“We expect to be able to normalise policy but until those conditions have lifted, that have held back economic activity, monetary policy will need to stay accommodative. So in that sense perhaps that’s equivalent to saying that the path of normalisation is anticipated to be relatively gradual but again the path of rates will depend on how economic conditions actually evolve.”