Fed grapples with rising prices and slow growth
Federal Reserve Bank Chairwoman Janet Yellen testifies to the Joint Economic Committee during a hearing entitled 'The Economic Outlook,' on Capitol Hill, May 7, 2014
The Federal Reserve’s key policy-making body — the Federal Open Market Committee — wraps up its two-day meeting today with a news conference hosted by Chair Janet Yellen, and projections on economic growth going forward.
Consumer prices were up strongly in May — at around a 2 percent annual rate — for everything from food and gasoline, to rents and new cars. If that keeps up, the Fed might have to raise short-term interest rates sooner than expected, to tamp down prices. That could also tamp down consumer spending and job growth.
“You’ve still got the backdrop of this slow-growth economy with stagnant household income," says Greg McBride, chief financial analyst at Bankrate.com. "Suddenly inflation’s starting to pick up, so you’re taking away what little spending power the consumer had.”
And Bernie Baumohl at the Economic Outlook Group says even though economic growth and job-creation have clearly rebounded since the dismal winter months, there are a lot of wild cards out there for the Fed — like stubbornly low wage-growth in the U.S., not to mention civil strife in Iraq, and soaring oil prices worldwide.
“The geopolitical pot is really boiling furiously," says Baumohl. "And it really greatly complicates the decision-making process on the Fed, among investors and also among CEOs.”