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Why some say Fed interest rate hikes are premature

Nancy Marshall-Genzer Mar 16, 2017
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Rising wages are "a signal that we’re coming closer to our maximum employment objectives," Federal Reserve Chair Janet Yellen said at a briefing yesterday.
BRENDAN SMIALOWSKI/AFP/Getty Images

The Federal Reserve voted to increase interest rates by a quarter percentage point at its March meeting. It’s signaling two more quarter-point rate hikes this year.

Fed Chair Janet Yellen said the economy is strong and ready for a rate hike. Inflation is closing in on the Fed’s target of 2 percent, and Yellen said the unemployment rate is continuing to fall. But some people say it’s premature to raise rates. 

At the press conference after the meeting, Marketplace asked Yellen about Fed critics who say wages aren’t growing fast enough for an interest rate increase. They say some workers are still struggling with low wages, and it’s not appropriate to pile an interest rate increase on top of that. But Yellen said wages are starting to rise.

“I take that as a signal that we’re coming closer to our maximum employment objectives, but productivity is, for those focusing on wage growth, productivity is an additional important factor,” she said.

There’s quite a debate about this. Some economists say the recession depressed investment in research and development, and companies just aren’t innovating enough, and that’s lowering productivity growth.

Minneapolis Fed President Neel Kashkari voted against the rate hike. 

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