Fed Won’t Wait Long to Raise Interest Rate
Members of the Federal Open Market Committee (FOMC) said Tuesday the Federal Reserve still plans to raise the interest rate three times in 2017. The rate remains untouched after the committee’s first meeting of the year.
“I would not take March off the table at this point. We’ll have to see how it plays out in the next few weeks,” Patrick Harker, president of the Federal Reserve Bank of Philadelphia said in an interview with Market News International regarding Fed officials’ intentions for a March interest-rate hike.
The FOMC expressed similar intentions following its December meeting when rates were raised for only the second time in the last decade. Since then, retail spending, job growth, Wall Street performance and consumer confidence have remained strong, though inflation has yet to hit the Fed’s 2% target, according to a U.S. News report. The next meeting will take place March 15-16.
Fed Chair Janet Yellen testified last week before the Senate banking committee, leaving the window open for a March rate rise. “I would say every meeting is live,” she said, also noting to Congress Tuesday that waiting too long to raise interest rates would be “unwise.” The market reacted immediately, with government bond yields jumping in response to the announcement.
Despite these claims, Wall Street believes the Fed will not feel pressured to raise interest rates next month. According to a CNBC report, slower January wage growth in the financial services sector showed a steep year-over-year decline. While employment was up, wages were down, according to a Bureau of Labor Statistics report, citing a lack of bonuses as a factor in the decline.
Some economists argue the January report is a fluke, predicting a snapback by mid-year to normal wage gains, spurring the Fed to raise interest rates in June. Both JPMorgan and Goldman Sachs economists agree March is too soon for a rate increase, given the Fed’s history of preparing markets for a move. Instead, they predict a rise is more likely to happen in May.