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Fed Ponders Interest Rate Increase

  • VOA News

A Federal Reserve police officer keeps watch while posted outside the Federal Reserve headquarters in Washington, Sept. 16, 2015.

A Federal Reserve police officer keeps watch while posted outside the Federal Reserve headquarters in Washington, Sept. 16, 2015.

Top officials of the U.S. central bank are gathering in Washington Wednesday and Thursday to decide if they will raise interest rates for the first time in a decade on Thursday.

Analysts say it is hard to predict what the U.S. Federal Reserve will do or what its impact will be. A higher interest rate would bring higher borrowing costs, which tend to hurt stock market values. The increase, however, would also be a vote of confidence by the Fed in the strength of the U.S. economy, which might bolster stock prices.

The central bank changes interest rates in an effort to manage the economy toward stable prices and full employment.

The Fed slashed interest rates to a record low range between zero and a quarter of a percent during the financial crisis in a bid to support economic growth.

Since then, unemployment has fallen from 10 percent to just over 5 percent, while inflation has been below the Fed's target of a 2 percent annual rate.

Falling gasoline prices meant overall prices rose just two-tenths of a percent over the past year, according to a Labor Department report Wednesday.

Analysts at both PNC Bank and Wells Fargo predict inflation will rise gradually toward the 2 percent target rate.

While economists say the U.S. economy is recovering, some argue against raising rates, saying too many Americans remain unemployed or working just part time, while inflation remains very low. Others say failing to raise interest rates could spark damaging inflation and leave the Fed with little room to maneuver when it tries to cope with the next downturn.

The Fed is scheduled to announce its decision Thursday at 2 p.m. Washington time.

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