Federal Reserve officials not sure about Right Time to Increase Interest Rates

Federal Reserve officials held minutes of the January 27-28 meeting and it indicated that policymakers don’t actually know when they should begin raising interest rates again or how they should inform about this to the investors.

Interest rates have been very low and some analysts said that they fear economic threats from abroad and the weak job market. However, according to the policymakers, they “observed that a premature increase in rates might damp the apparent solid recovery in real activity and labor market conditions”.

Since December 2008, Fed’s benchmark interest rate has been close to zero, and after many worries expressed by Fed officials regarding the economy, it is implausible that the rates will rise by June.

Sal Guatieri, senior economist at BMO Capital Markets, said that some policymakers still seek confirmation that growth will remain strong and inflation will again reach the 2% target prior to starting the normalization process. As per Guatieri, the rate hikes could be postponed till November or even after that.

This could prove to be good news for investors if losses in the stock market ease and bond prices increase.

It was discussed by the officials in the meeting how the low inflation could be tackled, which remains less than the Fed’s 2% target. They also discussed about issues concerning weakening wage growth despite increasing employment figures.

Overall, they didn’t tell for how much time they wanted to wait, fearing that financial markets could overreact. They also didn’t figure out what was actually required to be observed in economic data prior to beginning monetary policies.