The Federal Reserve just put off the most anticipated announcement of the year, again. The Fed will not raise interest rates — at least for now.
On Thursday, September 17, Federal Reserve Chairwoman Janet L. Yellen confirmed many investors’ suspicions that interest rates would remain close to zero, if only for a few more weeks. That’s because the Fed also published new economic projections on Thursday, and officials warned that they still plan to raise interest rates at some point in 2015. Despite growth in the U.S. economy this year, the Fed wants to offset the consequences of crises in the global economy, like the Chinese stock market crash.
“Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term,” the Fed said in an official statement.
The Fed can raise or lower the interest rates on Federal Funds, the reserve funds banks lend to each other. To encourage lending, the Fed has kept rates near zero since the Great Recession. In fact, the Fed hasn’t raised rates in about nine years. Back in 2012, the Fed pledged to keep rates low until unemployment dropped to 6.5%, which happened in April 2014. Seventeen months later, and the unemployment rate has dropped even lower to 5.1%.
For investors nervous about the far-reaching consequences of Fed action, it’s been a long, long wait. But the wait could be over soon, now that Fed officials believe the domestic economy is stable once more.
“The labor market continues to improve, with solid job gains and declining unemployment,” the Fed said Thursday.
And falling unemployment isn’t the only indicator of a stabilizing domestic economy. Vacancy rates in office spaces, retail markets, and industrial vacancies are all projected to keep dropping in the fourth quarter of 2015.
All signs point to an imminent raise in rates. Members of the Fed’s policy making-committee, the Federal Open Market Committee, are nearly unanimous on that point. In the new projections, 13 of 17 committee members said the Fed will raise rates by at least 0.25%, while six members predicted even bigger increases. The committee meets again in October and December, and so an official raise could be just weeks away.
By the end of 2017, officials project the rate will reach 2.9%.