WASHINGTON, September 17, 2015– Denoting a weak economy, the United States Federal Reserve, a private bank that controls the country’s monetary policy, decided to hold off on hiking interest rates. Federal Reserve Chairman Janet Yellen made the announcement at a press conference following the Federal Open Market Committee meeting on Thursday. The announcement sent the stock market soaring.
In January, President Obama told Americans during his State of the Union address that the economic crisis was over. “Tonight, we turn the page,” Obama said. “The shadow of crisis has passed, and the State of the Union is strong.” However, Yellen’s refusal to hike rates tells another story of the state of the American and global economies.
According to policymakers, the economy is expected to grow, but forecasts for gross domestic product growth have been downgraded for the next two years. When coupled with China’s sinking economy, dovish Fed members discouraged a rate-hike.
Currently, rates are at rock-bottom levels, and haven’t been hiked in almost a decade. A hike would cause short-term pain in the economy, which is why the feds have continuously pushed against raising rates. The weak economy simply cannot handle the hike without taking a hit.
Regardless, the Fed is still considering a hike. They will take up the issue again during their policy meetings in October and December.
Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, was the only Fed official to vote in favor of raising rates.
Low interest rates are good for investors, as it means money is cheaper to borrow. However, low rates create morale hazard in the markets, which leads to uncontrolled risk. The same low rates created the moral hazard that first sank the economy before President Obama was elected. Low rates are also bad for those with retirement funds and savings accounts because their return is often based off of the fed’s rate.