Fed Leaves Interest Rates Unchanged

Low Interest Rates Remain

The Federal Reserve has decided to leave interest rates alone for the foreseeable future, according to a report from Reuters. Despite the fact that a target rate-hike was announced last December, the Fed has deferred any increases as part of a long-term plan to reignite the U.S. economy. President of the Minneapolis Federal Reserve, Neel Kashkari, stated that “the U.S. economy has room to grow before it overheats”. Economists have been speculating when the Fed will introduce a new rate increase as recent figures show the economy on a steady, upward growth. National unemployment is currently at 4.9 percent, which many economists agree is a sign of a stabilized economy. They also say that soft inflation rates are beginning to show signs of hardening. The Fed plans to keep interest rates unchanged as a cushion against a possible slowing global economy and in the event of any destabilizing events in the global market.

Aren’t low interest rates a good thing?

Yes and no. Low interest rates encourage consumers to borrow and invest back into the economy. They also insulate an economy against unforeseen financial events. Low interest rates make investing safer, but they limit returns on investments due to such a low annual accumulation of interest. Long-term investments, like bonds, bear incredibly low yields. Low interest rates also push up inflation rates, or the cost of goods and services.

Further Economic Cushioning

On a related note, Reuters reports that Federal Reserve Chair Janet Yellen announced this week that the Fed is considering a change to their annual stress tests, or how the overall economy and U.S. securities will fare in the event of a global financial crisis. Without going into specific commentary on the state of the U.S. economy, the Fed char described a more “risk-sensitive, firm-specific buffer”.