Stanley Fischer, vice-chairman of the Federal Reserve, indicated that there is a possibility that the Fed will increase interest rates later this month. Speculators have anticipated that an increase in interest rates has been possible for some time. Recent market changes, especially those in China, may play a part in the committee’s decision. Interest rates have remained near zero since 2008, and for the past three years the inflation rate has been less than the Fed’s target rate of 2%. A constant economic performance, the effects of a strong dollar, and a drastic decline in oil prices have prevented inflation from surpassing the target rate. As these factors become less prevalent, inflation is expected to increase. Fischer noted, “In making our monetary policy decisions, we are interested more in where the US economy is heading than in knowing whence it came.”
Although many people speculating on the Fed’s actions have been fairly certain of an impending interest rate increase, most have become less sure in recent months. China’s current economic situation, volatility in the financial markets, and inflation remaining below 2%, have led people to become less sure about the possible September increase. While Fischer leaves a possibility for an interest rate hike, other members of the Fed alluded to the increase coming at a later date. They also did not deny any possible increase later this month. Before the recent economic activity in China and its global effects, a September increase would have been easier to anticipate.
Proponents of the possible increase emphasize that the US economy has had constant growth of 3.7% in the last quarter and its 5.3% unemployment is the lowest rate it has been since 2008. Others are quick to point out that China’s economic downturn could negatively affect the US economy and that inflation has been below the target rate. The state of the US and global economy in the upcoming weeks will likely factor into the Fed’s decision.
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