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Author: Bob Longworth
Jun 17, 2016 at 11:22pm

When will the Fed raise interest rates?

Disappointing job growth in May combined with other economic factors seem to have caused the Fed to reconsider a June rate hike.

The Federal Reserve’s April meeting minutes suggested that a strengthening economy could bring about the decision to raise interest rates at the June meeting. However, disappointing job growth in May combined with other global and domestic factors seem to have caused the Fed to reconsider.

Only 38,000 jobs were added in the United States in May, well below the roughly 150,000 most experts were predicting, but it is unclear whether May is an outlier month or representative of a new trend. Thus, upon the release of the disappointing numbers, the media began to speculate on whether the Fed would put its plans to raise rates on pause until it could find out if job growth will continue to wane.

In addition, many experts have been saying that the Fed will likely delay making any decisions until Great Britain votes on whether or not to leave the European Union. The British vote does not take place until June 23, and the Fed’s June meetings are held the 14th and 15th. Thus, the Fed would not be able to make a decision in June based on what happens overseas. If Britain does vote to leave the EU, there will be significant international economic ripple effects, which is why many expressed confidence that the Fed will wait to see what happens across the pond.

According to Reuters, a British exit, or Brexit, has the potential to cause a rush into safe assets, a widening of credit spreads and a strengthening of the U.S. dollar.

 

Amidst all of this speculation, Janet Yellen, the Fed’s chair, finally made a speech on June 6 in Philadelphia. While she did not say outright that the central bank will not raise interest rates in June, The New York Times interpreted the fact she did not mention the possibility of a rate hike as an assurance that rates will probably stay put in June.

Still, Yellen emphasized that a rate hike is still very much on the Fed’s radar. She expressed confidence in the economy continuing to grow, and if it does indeed do so, she said gradual rate increases will probably occur. She also acknowledged the possibility that the economy will not meet growth expectations, especially in the wake of May’s jobs report.

According to the International Business Times, Yellen discussed four main risks the U.S. economy is facing right now: inflation, slower demand, changes happening overseas and slower productivity.

It seems all America can do for the moment is wait and see what happens in both the domestic and global economy.