On February 18, the Federal Reserve’s Open Market Committee released minutes from its meeting January 27-28, 2015. A major topic of discussion was how current economic conditions bear on the Fed’s long-awaited plan to begin raising short-term interest rates. The benchmark federal funds rate has hovered near-0-percent since December 2008, as part of the Fed’s broader effort to stimulate the economy by encouraging more consumer spending, business investment and hiring.
Market analysts trying to glean any hard-and-fast intelligence on when the Fed plans to begin hiking interest rates will be disappointed. Fed officials (who are not named in the minutes) are carefully non-committal on the precise timing of anticipated monetary tightening, signaling they want maximum flexibility to respond to emerging economic developments. The widespread expectation among economists is that rates will start rising in June or September of 2015.
The minutes from January (released three weeks after the meeting) show Fed officials are worried that core price inflation (excluding volatile food and energy) and wage inflation are too low right now, the global economy is stumbling, and the strong U.S. dollar is hurting U.S. exports. But they see a steadily improving job market.
“Job growth has been very good, the unemployment rate has come down,” says Gary Thayer, head of global macro-strategy at the Wells Fargo Investment Institute. “I think businesses are probably at the point where if they want to expand further they will need to hire more workers, and I think that will make consumers feel better. When the Fed gets around to raising interest rates, the impact probably won’t hurt the economy that much.”
Fed officials are concerned that if they raise rates to soon to keep the economy from overheating and inflation from getting out of control, they’ll squash job growth. The danger is that growth will slow down before it can benefit the underemployed and long-term unemployed, who haven’t seen quick improvement in their job prospects during the six-year post-recession economic recovery.
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