FED Meets Tomorrow, Rate Increase Expected

Yellen

The Federal Reserve Bank presidents will be meeting Wednesday at the FOMC meeting. The expected result of the meeting will be a .25% interest rate hike. The FED currently has interest rates set at 0%.

The FED has been expected to raise rates several times this year, but the Chairwoman, Janet Yellen has continued to state the economy is not meeting FED expectations to increase rates.

After the last FOMC meeting the FED reported that,

The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

Earlier this month the Chairwoman made this statement,

I anticipate continued economic growth at a moderate pace that will be sufficient to generate additional increases in employment, further reductions in the remaining margins of labor market slack and a rise in inflation to our 2 percent objective.

This seems to indicate that Janet Yellen believes it is time for a rate increase. She also echoed these statements in her congressional testimony.

She also continued her statement by warning that not increasing rates can lead to the economy “over-shooting” it targets and the economy falling into recession.

Although, some believe the recent jobs numbers are not as good as they seem. Zero-Hedge reports that most of jobs added in November were part time jobs. While high numbers of part time job creation looks good on paper, having 6.1 million Americans under employed is not a good sign for the economy.

Some also question the timing of the move, as economic data has been generally weak. The Atlanta FED is now predicting just 1.9% GDP growth in the 4th quarter.

Interest rates have been at 0% since 2008. This is the longest period that interest rates have been at 0%.

The last time the FED increased interest rates was in 2005. The first interest rate increase then was a part of a string of increases that returned interest rates to the historical normal of around 5%.

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