Feds Waiting Until October to Raise Rates?

Though Federal Reserve policymakers, worried that global financial market volatility could dampen the U.S. economy, did not raise the interest rates last week, they have begun laying the groundwork for a possible interest rate increase in October.

Two voting members of the Federal Open Market Committee, which sets monetary policy, said they were close to approving a rate hike on Thursday but wanted to take more time to assess the effects of the market turmoil and China’s slowing economy. Both said they expected a hike this year.

“It’s too early to know whether this episode amounts to a bona fide shock to the economy or just a nervous spasm in the markets,” Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said Monday.

Lockhart, a centrist, is one of the 10 voting members of the policy-setting Federal Open Market Committee. It voted 9-1 on Thursday to hold the central bank’s benchmark short-term rate at near zero percent after a much-anticipated two-day meeting last week.

Lockhart said Monday that he was confident the Fed would do so by the end of the year. The rate has been near zero since late 2008 in an attempt to stimulate the economy. The Fed meets again Oct. 27-28, then Dec. 15-16.

The labor market has healed enough for an interest rate hike, he said, but he remains concerned about inflation continuing to run well below the Fed’s 2% annual target.

“As things settle down, I will be ready for the first policy move on the path to a more normal interest-rate environment,” Lockhart said.

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