http://thehill.com/policy/finance/254060-fed-holds-off-on-rate-hike By Peter Schroeder - 09/17/15 02:06 PM EDT
The Federal Reserve opted against a much-anticipated rate hike Thursday, citing market turmoil across the globe.
In its latest policy statement, the central bank said the economy is continuing to improve moderately, but that it still believes it could assist that growth by keeping interest rates near zero. In the statement, the Fed cited “recent global economic and financial developments” that could restrain economic activity and push down inflation for a while.
Federal Reserve Chairwoman Janet Yellen, as she has for the last several months, tried to strike a delicate balance in explaining the Fed’s thinking Thursday. She explained that while the Fed believes the U.S. economy is doing well, the raucous stretch for financial markets driven by concerns abroad, combined with a slight slowdown in inflation growth, has the central bank wanting to take a second look.
She conceded that the case for hiking rates at the September meeting could be made, but those factors combined were enough to push the Fed away from an increase.
“I do not want to overplay the implications of these recent developments, which have not fundamentally altered our outlook. The economy has been performing well and we expect it to continue to do so,” she told reporters. “We want to take a little bit more time to evaluate the likely impacts on the United States.”
Financial markets in the U.S. and worldwide have been in a raucous state for the last several weeks, driven in large part by significant turmoil in China. Yellen has indicated the Fed would like to raise rates sometime before the end of the year. By holding off at its September meeting, the Fed has just two more chances to raise rates before the year is out.
Updated predictions from Fed officials show the vast majority of members of the Federal Open Market Committee, which sets Fed policy, still anticipate a rate hike sometime between now and January. Thirteen FOMC members still predict a 2015 hike, while just four expect the first increase to come in 2016 or 2017.
Thursday’s policy statement was intensely watched, as experts and analysts believed it could be the moment the central bank finally raises interest rates for the first time since the financial crisis. The Dow immediately dropped following the Fed’s statement, erasing the day’s gains and going into negative territory.
Economic projections released by the Fed Thursday saw the institution upgrade its outlook for economic growth in 2015, while trimming expectations for the years to follow. Fed officials also expect the unemployment rate to be lower in the coming years than it last predicted in June, along with inflation.
While the Fed’s policies are always closely scrutinized, anticipation for Thursday’s statement was at its highest level in years, since a hike would mark the first attempt by the Fed in years to tighten monetary policy after years of unprecedented efforts to lower borrowing costs. The central bank quickly slashed rates to near zero when the crisis hit. Then it embarked on three separate rounds of “quantitative easing,” a contentious and unprecedented bond buying spree that drove the Fed’s portfolio into the trillions of dollars.
For years Republicans had been critical of the Fed’s efforts, calling them ineffective and risky. Instead, they pushed for the central bank to tighten policy sooner rather than later.
But once the Fed began preparing to raise interest rates for the first time in nearly a decade, it was liberals’ turn to pressure the Fed. As the central bank released its statement, Rep. John Conyers (D-Mich.) joined protestors outside the Fed, arguing more needs to be done to cut into the unemployment rate before hiking rates.
Liberals cheered Thursday’s policy announcement.
“It is good news that the Federal Reserve did not raise interest rates today. At a time when real unemployment is over 10 percent, we need to do everything possible to create millions of good-paying jobs and raise the wages of the American people,” said Sen. Bernie Sanders (I-Vt.). “It is now time for the Fed to act with the same sense of urgency to rebuild the disappearing middle class as it did to bail out Wall Street banks seven years ago.”
