The betting is that the Federal Reserve won’t raise interest rates at this week’s meeting of the Federal Open Market Committee, its key policymaking body. There are already complaints that the Fed, which cut short-term rates to near zero in late 2008, is waiting too long to reverse low rates. Last December, the Fed increased rates by a quarter of a percentage point. It hasn’t done anything since.
“The Fed will make a major mistake if it doesn’t raise rates,” says economist Mark Zandi of Moody’s Analytics. “The job market is strong and very close to full employment. Inflation is close to target [2 percent annually], and financial markets are in good shape.” Yet, Zandi doubts the Fed will raise rates by another quarter percentage point.
The case for standing pat was made by Lael Brainard, a Fed governor, in a recent speech. “Since 2012, inflation has tended to change relatively little . . . [while] the unemployment rate has fallen from 8.2 percent to 4.9 percent,” she said. Without accelerating inflationary pressures, policy should still favor job creation, she argued.
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