During this meeting, many topics were discussed; however, one of the primary focuses was the potential for an interest rate hike. After much deliberation, it was decided that the current conditions don't warrant such a change at this time, so no action was taken.
The Fed's Open Market Committee (FOMC) chairman, Janet Yellen, explained that economic data does not yet indicate that an increase in the federal funds rate is necessary. She further noted that numerous economic indicators like wages, inflation, and consumer spending are still far below where they should be to support a raise. In addition to the natural factors to consider, there are other external factors such as the effects of Britain’s exit from the European Union and the incoming U.S. presidential administration that will need to be evaluated in the future before any changes to the current rate would be appropriate.
The decision to keep the rate unchanged wasn’t entirely unexpected, given the fact that this was their first meeting since the election. The Fed indicated that the economy has seen slight improvement since the last meeting, with job growth being a positive sign. Even so, Yellen expressed her commitment to a “gradual and cautious” approach to raising the rate.
Though no action was taken at the meeting, the Fed released a statement that reaffirmed their intention to hike rates in the near future. The statement noted that once the necessary economic conditions improve, they will move to raise the rate. In addition, the statement highlighted the risks posed by the global economy; specifically, it mentioned the potential effects of Brexit and the US presidential election. As a result, the Fed taking a cautious approach is understandable.
In summary, the Federal Reserve held a meeting in December of 2016 and chose to keep the interest rate unchanged due to the current economic conditions. While job growth is somewhat encouraging, other factors such as wages, consumer spending, and inflation are still low. With this in mind, the FOMC chairman Janet Yellen committed to a “gradual and cautious” approach to raising the rate when the right conditions exist. The statement released after the meeting also acknowledged the potential effects of Brexit and the US presidential election, thus further underlining the need for a conservative course of action.
This article was contributed on Nov 04, 2023
