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Fed holding off on rate increases but says it could still happen this year
Fed holding off on rate increases but says it could still happen this year - photo by Omar Etman
Federal Reserve Chair Janet Yellen announced last week the economy is still not strong enough to warrant a hike for interest rates, though she is optimistic the anticipated hike could arrive as soon as September.

Since the committee last met in April, the pace of job gains has picked up and labor-market gains have improved further, Yellen said at a press conference in Washington. Even so, the committee judged that economic conditions do not yet warrant an increase in the federal funds rate.

In a continued effort to increase economic growth by encouraging risk-taking, interest rates have been at zero since the financial crisis in 2008, according to The New York Times. By keeping rates low, businesses are spurred to spend on new investments, a huge boon for Wall Street corporate profits, and people are more inclined to buy new homes. The extra spending fuels increases in employment and economic output.

But once an economy rebounds, more spending eventually yields more inflation, creating a weaker dollar, which the Fed wants to prevent.

At the Federal Open Market Committees meeting in May, Yellen hinted interest rates would soon rise, suggesting that the economy was healthy enough to withstand a hike, according to Vox. Investors interpreted that to mean an announcement would be made at the following meeting, which took place last Wednesday.

Now that the meeting has come and gone, surprised investors have realized theyll have to keep waiting.

No decision has been made by the committee about the right timing of an increase, but certainly an increase this year is possible, Yellen said. Still, she is steadfast about not revealing too much too soon, instead taking a wait and see approach.

Fed officials have portrayed these plans as a testament to the progress of the economic recovery, Binyamin Appelbaum wrote in The Times, and they have emphasized they plan to raise rates slowly more slowly than the Feds past practice so that they do not put the brakes on growth too soon.
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