Fed signals rate hike likely later this year
WASHINGTON — Expectations have grown that sometime this year, the Federal Reserve will raise interest rates from record lows. The only question seems to be when.
A statement the Fed issued Wednesday after ending its latest policy meeting provided no timetable. The central bank signaled that it wants to see further economic gains and higher inflation before raising rates.
Many analysts foresee the first hike in September, though Fed Chairman Janet Yellen has stressed that any increase will be driven by the latest economic data.
Wednesday’s statement noted that the job market, housing and consumer spending have all improved. The Fed still expects inflation to rise gradually toward its 2 percent target.
The statement made only slight changes to the wording of the previous statement in June. The few modifications suggested a healthier economy.
Describing the job market, the Fed for the first time pointed to “solid” job gains. In addition, the Fed said it needs to see only “some further” improvement in hiring, rather than the “further” improvement it said last time — a hint that the job market is nearing full health.
Michael Hanson, an economist at Bank of America Merrill Lynch, said the Fed’s more upbeat language about the job market suggests that policymakers are nearing the point where they will raise rates. He expects that to occur in September.
“They haven’t made up their minds, but ... we’re getting that much closer to satisfying their criteria” for a rate hike, Hanson said.
Yellen has stressed that when the Fed begins to raise rates, it will do so only gradually. The idea is to avoid weakening an economy that’s still benefiting from low borrowing rates resulting from the Fed’s policies. She has suggested that raising rates in small increments, followed by pauses, will let the Fed assess the effects of slightly higher borrowing costs.
The Fed has kept its key short-term rate at a record low near zero since 2008. Once it raises it, other rates — for mortgages, auto loans and corporate borrowing — could rise, too.
“In my mind, the Fed is very comfortable with a slow, deliberate pace,” said Brian Bethune, an economics professor at Tufts University in Boston.
