Hilsenrath: Fed Is a No-Go for Next Week

In today’s WSJ, Jon Hilsenrath says that the Fed will probably not raise interest rates next week.

That’s what I expected. Hilsenrath is generally considered to be the Fed’s main go-to guy. In other words, when Hilsenrath says “senior Fed officials,” he means very senior.

Federal Reserve officials, lacking a strong consensus for action a week before their next policy meeting, are leaning toward waiting until late in the year before raising short-term interest rates.

It is a close call. But with inflation holding below the Fed’s 2% target and the unemployment rate little changed in recent months, senior officials feel little sense of urgency about moving and an inclination toward delay, according to their public comments and recent interviews.

(…)

With the jobless rate at 4.9%, some regional Fed bank presidents believe that the labor market has largely recovered from the financial crisis of 2007-2009, and that short-term interest rates just above zero are no longer warranted. This group notes that risks to the U.S. economy from overseas have dissipated in recent weeks, strengthening the case for a move now.

For others, the watchword is patience. This group largely expects to raise rates this year but doesn’t see a need to act now. These officials note the jobless rate hasn’t moved much this year. Slack in the labor market is thus diminishing at a slower pace than before. That has reduced the urgency to raise the cost of credit to prevent the economy from overheating.

Moreover, because the economy is growing so slowly, this group doesn’t believe rates need to move very high in the months and years ahead, thus the Fed can take its time.

Posted by on September 13th, 2016 at 10:21 am


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