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Here’s Why the Fed Left Interest Rates Unchanged

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In December, the Federal Reserve hinted that it would raise interest rates three times in 2017 but it may be a few months until those hikes begin.

As expected, the Federal Reserve’s Open Market Committee made a unanimous decision on Wednesday to leave the benchmark interest rates between 0.50% and 0.75%. They gave no indication as to when the first hike of 2017 would take place.

According to CNBC, “2017 is shaping up as another year in which Fed officials’ time frame for rate hikes is looking too aggressive.”

In its statement, the FOMC noted there had been steady job grown since December according to the economic data and moderate increases in household spending and also that economic activity has continued to grow at a moderate pace.

“The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation,” the committee said in its statement on Wednesday.

Fed officials are watching fiscal policy makers closely. This is because the Fed believes that the American economy is growing at something close to the maximum sustainable pace. Essentially, they believe that the faster growth will probably lead to higher inflation. The New York Times reported, “Changes in fiscal policy are most likely to have a gradual impact, however, so the tension between the Fed and fiscal policy makers may play out mostly in coming years.”

According to economist at UBS, Samuel Coffin, “the tone of growth and inflation data likely has not changed enough to alter the outlook for growth or monetary policy. Also, Fed officials have good reason to wait in order to assess the impacts of the December hike. And federal policy uncertainty also argues for a pause.”

Coffin went on to say that the risks for the new federal government policy are not understood, “the President’s budget has not been formulated, and his policy-making, for the most part, is still ahead. It would thus be too soon for the FOMC to alter guidance. Even so, a more expansionary fiscal policy or a restriction on immigration—or, more generally, a higher-pressure economy—might each have inflationary effects. But until policy is better defined, Fed officials’ early assessments of possible growth and inflation effects will probably come in speeches—not in Wednesday’s FOMC statement.”

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