October 29, 2015
The Federal Reserve has left its interest rate as is… close to zero… but directly referenced a rate hike likely planned for its December 15-16 meeting. This unprecedented hint into the future gives the Fed the power to test the markets before making changes.
U.S. Employment has slowed down, but the Central bank policymakers still see an increase in consumer spending and investments by businesses. However, the increase is not as steep as previous months, so changing the rates now could impede that growth. Keeping interest rates so low promotes risk taking and investment, rather than saving.
As international markets face easing monetary policies, the dollar gets pushed up, which makes it more expensive for U.S. exporters, keeping inflation low. Additionally, by focusing on job growth, inflationary pressure will follow, which will help bring inflation closer to the goal of 2%.
According to George Smith Partners’ Pascale’s Perspective, the Fed may have missed its mark to make a change back in May, before the economic earthquake of summer hit. Pascale believes that the Fed is drawing attention to the December meeting where they could have to make change in an effort to maintain credibility.