This Wednesday, the Fed is announcing it’s policy statement and economic forecast. It is anticipated that the Fed will remove its pledge to be “patient”, in that they will be able to raise short-term interest rates as soon as June. The Fed has not increased rates since 2006, and has kept them at zero since December 2008.
The debate on raising interest rates is wide spread. Economists such as Paul Krugman and Larry Summers urge the Fed to remain patient. Krugman is quoted saying, “If we raise rates prematurely, we will be very very sorry, while if we wait too long, it will just be annoying… the list of things we don’t know is pretty impressive, especially the impact of the strong dollar on the economy”.
Overall, the economy has been posting mixed messages, making the Fed decision difficult to predict. On one hand, hiring is the strongest it’s been in 15 years, and shows no signs of slowing down. This generally has put cash into the economy, while also boosting the spirits of consumers. However, even despite the fall in oil prices, Americans are still not spending nearly as much as in the past. This is likely attributable to sluggish wage growth and high household debt levels.
Arguably, this slow growth is not necessarily a bad thing. Economist Richard Moody explains that much of the fast growth in the late 1990s and mid-200s was a result of individuals and companies increasing debt to gargantuan levels that could not be sustained.