The Fed Just Inched Closer to Raising Interest Rates

Alex Wong via Getty Images
Alex Wong via Getty Images

The Federal Reserve announced on Wednesday that it will keep interest rates at or near zero for now, but implied it would soon raise them, alarming left-leaning activists and economists concerned about stagnant wages.

The Federal Open Market Committee (FOMC), which is the central bank’s body responsible for managing key interest rates, said in a statement that its decision was based on the conclusion that interest rates of zero to 0.25 percent — known as the “zero lower bound” — were still needed to “support continued progress toward maximum employment and price stability.” The statement refers to the Fed’s dual mandate to both pursue full employment and keep inflation low through its control of the money supply. 

The FOMC said that inflation in particular continues to remain too low to warrant an interest rate hike.

“Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports,” the committee said in the statement.

However, the Fed also indicated in its statement that it is optimistic about the pace of economic growth, buoying expectations of a rate hike in September when the FOMC meets next. Many analysts have been predicting that the Fed would raise rates as soon as September, or at least before the year’s end.

The FOMC statement noted that “economic activity has been expanding moderately in recent months. The labor market continued to improve, with solid job gains and declining unemployment.” 

The Fed has kept the primary interest rate it controls near zero since December 2008.

Many activists and economists, including the left-leaning nonprofit Center for Popular Democracy’s Fed Up campaign, believe that the Fed has prioritized the inflation half of its dual mandate at the expense of full employment. They argue against raising rates before unemployment gets low enough for employers to raise wages. And they are especially considered that unemployment rates remain disproportionately high in communities of color.

The Fed Up campaign was pleased that the Fed did not raise rates on Wednesday, but called the lack of a rate hike a “low bar,” since it was not even expected by most observers. Instead, the campaign emphasized its frustration with the FOMC statement for ignoring signs of slack in the job market. 

“The FOMC statement hails ‘solid job gains,’ but does not mention that the most recent job figures showed a slowdown in wages,” said Jordan Haedtler, deputy campaign manager for Fed Up. “The downward trend in wages is a major reason why the Fed should not raise interest rates in 2015.”

Written by Daniel Marans of The Huffington Post

(Source: The Huffington Post)

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