Next Fed Rate Hike Likely in December
-David
Payne
This article discusses the decisions that will be
made by the Federal Reserve in the next few months regarding interest rates in
the United States. Although there was no raise in the month of September, there
is expected to be a raise in the interest rates by the end of this year. This
is because there is a small increase in inflation. The author, David Payne, points out that
the rates are unlikely to change in November because it is so close to the
election. If interest rates were increased in December, interest rates would
likely still stay low unless “inflation started to show a stronger upward
trend.” Payne also states that since the dollar is rising in value, things
are slightly more expensive for foreigners, so the exchange rate is higher.
According to Payne, an increase in pressure to raise wages will cause
inflation to rise a little, which will also make the Federal Reserve more
likely to slightly higher interest rates. The Fed also wants to have the option
to lower interest rates to support the economy in the case of a recession; in
order to have this option; interest rates should be a littler further away from
zero.
This relates to what we discussed in class regarding the relationship between interest rates and inflation. The Federal Revere can increase interest rates in order to work against inflation. But the federal bank may be hesitant to do this. If inflation is not rising enough to impact the economy substantially, they may want to not raise interest rates, because lower interest rates can lead to more economic growth. We can also connect the Fed’s decisions on interest rates to Friedman’s idea of Monetarism, which states the use of interest rates as the chief way to control the economy. It will be interesting to see if the Federal Reserve will increase interest rates this December, and to examine different factors that lead to their decision.
This relates to what we discussed in class regarding the relationship between interest rates and inflation. The Federal Revere can increase interest rates in order to work against inflation. But the federal bank may be hesitant to do this. If inflation is not rising enough to impact the economy substantially, they may want to not raise interest rates, because lower interest rates can lead to more economic growth. We can also connect the Fed’s decisions on interest rates to Friedman’s idea of Monetarism, which states the use of interest rates as the chief way to control the economy. It will be interesting to see if the Federal Reserve will increase interest rates this December, and to examine different factors that lead to their decision.
Hi Julia!
ReplyDeleteThought your post was very informative and succinct! Raising the minimum wage has been a hot topic recently, do you think it would negatively influence interest rates or increase inflation dramatically? Personally, I'm a bit skeptical that it will be economically beneficial. Do you believe monetarism is the most effective way to influence the United States economy? Just curious!
Hope you had a good weekend,
-Hattie
Great Questions Hattie!
DeleteIt seems that raising the minimum wage wouldn't increase inflation dramatically, because minimum wage isn't set to keep up with inflation. So the value of minimum wage will decrease as time goes on because the cost of living is rising. But I am also skeptical that it will be economically beneficial to raise the minimum wage, and would be interested to see if interest rates would be effected by this.
I think monetarism is an effective way to influence the U.S. economy but I also think it is important to looking at fiscal policies as well. I think that monetary and fiscal policies are both important tools that can greatly effect the U.S. economy.
Hope you had a great weekend as well!
-Julia
Hi Julia! Sorry for commenting so late!
ReplyDeleteI thought this was an excellent post. However, I'm curious to know what the long term effects may be of an increase in wages. I expect that there would be some inflation, potentially long term, and in increase in interest rates. However, I am wondering if this would drastically affect people taking loans, and if so, to what extent? If the feds have the options to keep interest rates low incase the economy is not doing well, I wonder if they would keep it low now simply to keep the rates low.
Best,
Ben