Could the effects of a strengthening U.S. dollar – weaker export growth because U.S. goods are now more expensive overseas – and lower energy prices keep the Fed on hold a little longer?
No Longer “Patient”
Coming into this year, the consensus among economists was that the Fed would begin to raise interest rates in June. Official pronouncements from the Federal Reserve are always closely scrutinized to glean some perspective on the future direction of monetary policy. Following a two-day meeting this week, Fed Chair Janet Yellen, opened the door for an interest rate increase later in the year by no longer saying the Fed would be “patient” in starting to raise its benchmark rate. However, the Fed also signaled that it needs to see further improvement in the job market and an increase in inflation before they’ll begin raising interest rates.
Wait and See
It’s very interesting that the rise in the value of the U.S. dollar over the past year, especially against the Euro and the Yen, has done some of the work for the Fed by helping to moderate economic growth. It seems that weakness in export growth and weakness in energy prices has possibly bought the Fed some time. They clearly stated this week that they need to see “further improvement” indicating that the labor market and the economy have not yet met the criteria they believe necessary to warrant a rate hike. As always, the Fed remains very data dependent. Their latest statement indicated that, in addition to inflation and employment, they are also closely watching international developments when considering appropriate monetary policy action. Time will tell, but we may see the first rate hike in September instead of June as many had previously expected.
Published: March 20, 2015
Authored By: Chad A. Sander, CFP®
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