The Fed Keeps Interest Rates Near Zero

The U.S. Federal Reserve has decided not to raise interest rates at its September Federal Open Market Committee meeting. The committee’s two-day meeting concluded with Fed officials voting to keep interest rates near zero—the U.S. central bank’s target range for the federal funds rate will stay at 0 to 1/4 percent.

The decision comes after much anticipation—it would have been the first time the Fed raised interest rates in nearly a decade. There was an economic case to be made for keeping rates low, as well as to begin gradually raising them. According to a survey of private economists by The Wall Street Journal, 52 percent of private economists believed a rate increase would not happen today.

The U.S. job market has been putting in solid numbers in recent months, data that Fed watchers believed might convince the Fed to hike rates. The counter-argument against raising rates, though, is that inflation remains very low.

At a press conference following the announcement, Federal Reserve chairwoman Janet Yellen seemed to hint at the hype leading up to the September meeting: "The significance of the first increase should not be overstated,” said Yellen. The chairwoman also remarked that the committee “judged it appropriate to wait for more evidence, including some further improvement in the labor market, to bolster its confidence that inflation will rise to 2 percent in the medium term.”

Democratic presidential candidate Bernie Sanders released a statement praising the move: “It is good news that the Federal Reserve did not raise interest rates today. At a time when real unemployment is over 10 percent, we need to do everything possible to create millions of good-paying jobs and raise the wages of the American people.” The Nobel economist Joseph Stiglitz also urged the Fed to delay rate hikes due to concerns about inequality.

Leading up to the September meeting, economists and critics have called the Fed too eager to normalize—that raising rates too soon would be a mistake. But Fed officials have countered that because there’s a substantial lag before the effects of monetary policy on economic activity are felt, the Fed likely won’t wait until inflation is at 2 percent to begin tightening.

Yellen also noted that recent concerns and uncertainty regarding China and emerging markets were being closely watched by the Fed. And according to the projections in today’s release, an interest-rate hike is coming eventually: 13 of the 17 FOMC members predicted a hike in 2015. “Recent global economic and financial developments are likely to put further downward pressure on inflation in the near term,” said Yellen. “These developments may also restrain U.S. economic activity somewhat but have not led at this point to a significant change in the Committee’s outlook for the U.S. economy.”

The next FOMC meeting is scheduled for late October. There’s little doubt that Interest-Rate Watch will resume in the days leading up to that meeting.