Is A Fed Rate Hike In The Offing?

Will they or won’t they? This is still the question being bandied about with regard to a Federal Reserve interest rate hike.

Price inflation and the strength of the U.S. economy are the key factors the Fed uses to guide its interest rate decisions and in particular unemployment. The unemployment rate has fallen to 5.1 percent, and price inflation remains low due to depressed energy prices.

The Fed was expected to raise rates in September but the global market crisis in August crushed expectations for the hike. The Chinese Shanghai Composite Index lost 34 percent in the third quarter of 2015 alone, and instability in other parts of the around the world were taken very seriously in the Fed decision.

According to former Federal Reserve Chairman Ben Bernake, “The argument for raising rates is that slack is being absorbed, and the unemployment rate is low. The domestic economy at least is pushing forward…and we have a very low inflation rate, [which is] below the Fed’s two percent target. So, that would be the argument for going ahead and getting ahead of the curve.”

US Growth Up Slightly

The timing of the next rate increase is back in the news again. U.S. markets have grown slightly since mid- summer and the Shanghai Composite has gained 12 percent so far in October. Despite these improvements, the Federal Open Market Committee is still not expected to raise rates at its meeting next week.

This could all change if numbers come in indicating a possible recession. Bernanke believes another recession is definitely a possibility but says the odds are not high because of the growing domestic economy and low price inflation.

According to him, “There can always be a shock of some kind that was not anticipated, so you want to be careful about your forecasting…Economists are not very good at predicting recessions.”

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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