Tom: You are joining us this morning to talk about the recent Fed decision on interest rates, is that right?
Mellody: That’s right, Tom Joyner. The current short-term interest rate is still near zero after this past federal open markets committee meeting, keeping it where it has been for nearly seven years since the great recession. This morning, I want to talk about why the Fed decided to go this route, and what consumers can expect in the coming months!
Tom: Why had analysts expected a raise for most of this year?
Mellody: The Fed had been telegraphing an expected rate raise for almost a year based on the improving American economy. A number of indicators that the Fed looks at have all been pointing in the right direction, with consistent positive trends across the board. The unemployment rate has been dropping consistently, hitting 5.1% in august, the lowest rate since april of 2008, over seven years ago. The economic growth rate in the past few quarters has exceeded expectations. Consumer confidence was high throughout the summer. All of these indicators had been encouraging to the FOMC, and led to the expectation they would move in September.
Tom: What made them change their mind?
Mellody: It may sound like it doesn’t make sense, but the reasons they hit the brakes had very little to do with factors within the United States, and almost everything to do with concerns about economic growth abroad. As chairwoman Yellen put it, the Fed saw “heightened concerns abroad.” And what she was talking about was China, which had been the main engine of global economic growth in the past few years. The Chinese economy has seen a fairly dramatic slowdown, and the country’s stock market has caused global market jitters. On top of that, European growth was underwhelming for most of the year, and emerging markets outside of China have struggled as well. As a result, the Fed decided to postpone raising interest rates.
Tom: Can we expect a rate change in the near future?
Money Mondays: What The Fed Interest Rates Mean For Your Money was originally published on blackamericaweb.com