Federal Reserve to Economy: Party On, Not So Excellent!
Continuing to keep interest rates near zero, as the past few years of that haven't done enough good.
Although many have been predicting the Federal Reserve would raise interest rates very soon, the Fed now says it ain't so, at least not now, and that they just haven't seen enough growth from their multi-year near-zero-rate experiment, as reported by Washington Post:
"Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term," the central bank's official statement read.
The decision to keep the Fed's benchmark interest rate at zero amounts to a recognition that the robust recovery central bank officials had hoped for when they launched into an uncharted era of easy money during the throes of the 2008 financial crisis has yet to materialize….Seven years after the central bank cut its target rate to zero, Fed officials believe the recovery is not yet ready to stand on its own.
Actual rate hikes still might happen later this year or next year. The last time the Fed raised interest rates was in June 2006.
The Wall Street Journal on some of the specifics of what might be ahead, and why:
Though Fed officials still expect to move rates up this year, their projected path of rates has become shallower in recent months. The median projection for rates at the end of 2015 dropped to 0.375% from 0.625% in June. It also dropped to 1.375% at the end of 2016 from 1.625% projected in June. It fell to 2.625% at the end of 2017 from 2.875% projected in June. In the long-run the Fed projected the fed funds rate will reach 3.5%, down from an earlier estimate of 3.75%.
One official called for a negative interest rate in 2015 and 2016, something that has been tried in several European countries to boost growth and inflation. The Fed doesn't identify which officials make specific projections.
One reason for the shifting outlook: Officials have become a bit less optimistic about the economy's long-run growth potential. They projected the economy will grow at a rate between 1.8% and 2.2% in the long-run, down from their June estimate of growth of 2.0% to 2.3% in the long-run. A more lumbering economy has less capacity to bear much higher rates.
From last month, why Fed policy for the past few years may have done little more than inflate a stock market bubble.
Market analyst and "interest rate observer" James Grant talked to Matt Welch for Reason TV about why these low, low, low interest rates forever might be creating an economy goosed more by government choice than core economic reality:
