News / Economy

When Will the Fed Start to Raise Interest Rates?

FILE - US Federal Reserve Chair Janet Yellen.
FILE - US Federal Reserve Chair Janet Yellen.

No one knows when the U.S. Federal Reserve will begin again to raise the key interest rate that banks pay on overnight loans, but the central bank's July meeting minutes suggest it could be soon.

Since 2008, the Fed's key interest rate has been near zero.

On Wednesday, the Fed released the minutes from last month's meeting, and they show a majority of Fed policymakers believe interest rates can rise because the U.S. economy is now strong enough. But when interest rates will start to go up is the big unknown.

Wall Street hopes to learn more from Fed Chair Janet Yellen, who is scheduled to speak Friday at an economic conference in Wyoming.

Although Fed governors appears to say interest rates should rise, some conservative economists, including John Makin at the American Enterprise Institute, a Washington-based research institute, argue that the Fed should keep interest rates low for a while longer.

Makin said the 4 percent growth rate observed in the U.S. economy during the second quarter of this year could be short lived, and will be especially brief if the Fed is encouraged to raise rates. He pointed out that economic growth in the U.S. was less than 0.95 percent during the first quarter, below the 3 percent forecast by the Fed.

According to Makin, “without more artificial stimulus from the Fed... stock prices may - appropriately - begin to fall." He said low interest rates have created a market bubble on Wall Street.

Minutes from the July Fed meeting and the Bank of International Settlements annual report released in June suggest the low interest rates are failing to address some of the economic problems besetting the U.S.

Several of the participants at the Fed meeting, according to the minutes, expressed concern that Americans are saving too much, and "that the slow rise in wages and income might be insufficient to support stronger consumer spending." The factors suggest the Fed's six years of easy money policy may not be the prescription needed.

The meeting participants also said "a recovery in housing activity remains slow." They noted that "although mortgage rates were still low and housing appeared to be relatively affordable, various factors were seen as restraining demand, including low expected income and high levels of student debt as well as difficulty in obtaining mortgage credit, particularly for younger, first-time homebuyers."

Nevertheless, Makin argues for a continued easy money policy, at least until inflation moves above 2 percent.

According to last month's meeting minutes, that may be what the central bankers have in mind. The participants at the July meeting “noted that inflation had moved somewhat closer to the Committee's 2 percent longer run objective, and generally saw the risks of inflation running persistently below their objective as having diminished somewhat." At the same time, they were discussing at some future point allowing interest rates to rise.

Makin's other concern is that “an abrupt Fed move toward more tightening risks" could depress financial markets, which in the U.S. are near record highs.

You May Like

India PM Modi's Party Distances Itself From Religious Conversions

BJP under fire for being slow to rein in hardline affiliate groups allegedly trying to promote Hindu-dominant agenda by luring Muslims and Christians to convert More

Anti-Whaling Group Found in Contempt of Court

Radical environmentalists who threw acid and smoke bombs at Japanese whalers in the waters off Antarctica continue their campaign to disrupt Japan's annual whale hunt More

UN's Ban Urges End to Discrimination Against Ebola Workers

Ban was speaking in Guinea on the second day of a whistle-stop tour aimed at thanking healthcare workers of the countries at the heart of the epidemic More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
US Decision on Cuba Underscores Divisions Among Miami Cubansi
X
Sharon Behn
December 19, 2014 9:34 PM
For decades, older, more conservative Cubans have been gathering at Café Versailles on the corner of Calle Ocho to eat Cuban food and talk politics. After hearing of President Barack Obama’s decision, a number of them gathered in front of the café with posters to protest. VOA's Sharon Behn reports on the situation.
Video

Video US Decision on Cuba Underscores Divisions Among Miami Cubans

For decades, older, more conservative Cubans have been gathering at Café Versailles on the corner of Calle Ocho to eat Cuban food and talk politics. After hearing of President Barack Obama’s decision, a number of them gathered in front of the café with posters to protest. VOA's Sharon Behn reports on the situation.
Video

Video Three Cities Bid for Future Obama Presidential Library

President Barack Obama still has two years left in his term in office, but the effort to establish his post-presidential library is already underway. The bid for the Obama Presidential Library is down to four locations in three states -- New York, Hawaii, and Illinois. As VOA’s Kane Farabaugh reports, each of them played an important part in the president’s life before he reached the White House.
Video

Video Cuba Deal is Major Victory for Pope’s Diplomatic Initiatives

Pope Francis played a key role in brokering the US-Cuba deal that was made public earlier this week. It is the most stunning success so far in a series of peacemaking efforts by the pontiff. VOA religion reporter Jerome Socolovsky has more.
Video

Video Fears of More Political Gridlock in 2015

2014 proved to be a difficult year politically for President Barack Obama and a very good year for the U.S. Republican Party. Republican gains in the November midterm elections gave them control of the Senate and House of Representatives for the next two years -- setting the stage for more confrontation and gridlock in the final two years of the Obama presidency. VOA National Correspondent Jim Malone has a preview from Washington.
Video

Video Sudan School Becomes Target of Aerial Attacks

The school dropout rate is at an all-time high in Sudan's South Kordofan state because many schools have been destroyed during the three-year civil war between the government and SPLA-N rebel forces. Adam Bailes visited Sudan's Nuba Mountains' region and reports many children are simply too scared to go to school
Video

Video VOA Reporter Tours Devastated Peshawar School

Islamist militants wearing military uniforms and strapped with explosives attacked a military run school Tuesday in the northwestern Pakistani city of Peshawar. At least 141 people were killed in the horrific attack, most of them young students. VOA reporter Ayaz Gul visited the devastated school and attended the funeral of the principal who courageously tried to save her students from the deadly attack.
Video

Video Nigerians Fleeing Boko Haram Languish in Camp Near Capital

In its five-year effort to impose Islamic law in northeastern Nigeria, the Boko Haram extremist group has killed thousands of people and forced hundreds of thousands to flee. Some of those who ran for their lives now live in squalor on the edges of the capital, Abuja. Chris Stein reports for VOA.
Video

Video Aceh Rebuilt Decade After Tsunami, But Scars Remain

On December 26, 2004 there was an earthquake in the Indian Ocean so powerful it caused the Earth’s axis to wobble a few centimeters. Onshore on the island of Sumatra, the resulting tsunami was devastating. A decade later, VOA Correspondent Steve Herman reports from Banda Aceh, Indonesia, where although there is little remaining evidence of the physical devastation, the psychological scars among survivors remain.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8143
JPY
USD
119.23
GBP
USD
0.6390
CAD
USD
1.1596
INR
USD
63.304

Rates may not be current.