U.S. Interest Rates to Remain Low

In the wake of May’s underwhelming job report, the Federal Reserve has pushed back consideration of raising interest rates until at least July or September. In a speech on Monday, Federal Reserve Chairwoman Janet Yellen remained largely optimistic about the state of the economy and its growth, but left out any indication of when benchmark interest rates may increase.

As Consumers’ Research has previously discussed, low interest rates are not always good for consumers; but conventionally, low interest rates mean that borrowers can borrow money more easily, incentivizing growth.

Supporters of an interest rate increase argue that heading off inflation now is necessary in order to return the economy to a more normal rate and avoid bubbles like those that contributed to the 2008 financial crisis. Opponents worry that labor force participation continues to be lower than rates seen before 2008, and that higher interest rates may slow investment into the economy.

Neal Dutta, Head of U.S. Economics at Renaissance Macro Research, is optimistic about Chairwoman Yellen’s speech and the economy. He says, “the outlook for consumer spending looks reasonably good in the second half of the year.” Dutta believes the Fed will move in September at the earliest because “the stock market will be at a new high at the time the Fed goes.”

This hike would be only the second increase in interest rates in the last ten years. The last quarter point adjustment (.25%) came in December of last year and ended the famously low interest rates during the recovery from the 2008 financial crisis.

Read more here – “Janet Yellen Speech Indicates Fed Will Rethink Interest Rate Plans,” (Binyamin Applebaum, NYT)

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