Is a Fed interest rate rise imminent? It had been believed that the likelihood of a rate rise before the Presidential Election was highly unlikely. So is Janet Yellen referring to hike before this or simply confirming what we all think – that a Federal Reserve interest rate increase will apply from December?
We all knew that the Jackson Hole meeting in Wyoming might give some indication of when the anticipated Federal Reserve interest rate would increase. Head of the Fed, Janet Yellen, stated at the meeting that the case for an interest rate hike had strengthened. The employment market is stronger and the economy has grown at a good rate, which together means that there is a stronger case for the rate to increase.
This is nothing new of course, because most analysts have been expecting a Fed interest rate rise for some time now. Some are expecting the increase to come in September, while others believe it will still be after the election in November before any interest rate change is made. The smart money is still on December, though Yellen’s comments have disturbed this forecast slightly.
The main reason why interest rates have been steady over the past year is because of persistently low inflation. The last rates hike was at the end of last year – the first interest rate hike for a decade. While failing to give any statement as to when the rate rise would take place, Ms Yellen did infer that the Fed’s statutory targets for a rise were not far off now. These targets are based upon maximum employment and price stability.
She did state that any future increases in the central bank interest rate should be ‘gradual.’ The Federal Reserve’s inflation target for a rate rise is 2%. Inflation in the U.S. is still below that figure, although she also stated that this was due to ‘temporary factors.’
Ms. Yeller was not expected to give any indication at this meeting of when a Fed interest rate rise may be applied. By making this statement she is obviously leaving the door open for a rate hike shortly – sooner than expected. This makes it even more likely that the Fed will announce an increase in interest rate by, or even before, December.
December would not be as surprising as many believe. Most have thought that if there was to be a fed interest rate rise this year, then it would be after the November Presidential Election. December seems about right so nothing has really changed.
Pvt. Ltd.
