The Federal Reserve is widely expected to raise interest rates this year for the first time since 2006 but when exactly will it happen? The answer depends on how the economy fares in the second half of the year.
The most likely scenario is that the Fed will raise rates in September assuming the economy continues to improve as expected. The jobs report for July released last Friday showed that the U.S. economy added a strong 255000 jobs last month. That was well above economists’ expectations and solid evidence that the economy is continuing to heal from the Great Recession.
Inflation is also starting to inch up although it remains below the Fed’s 2% target. The Fed’s preferred measure of inflation the personal consumption expenditures price index rose 1.2% in the 12 months ending in June.
All of this suggests that the Fed will probably start to raise rates in September. But there are a few things that could trip up the economy between now and then and cause the Fed to delay its rate hike.
One worry is that the global economy is still fragile. Europe is struggling to contain its debt crisis and China’s economy is slowing down. If these problems lead to a sharp drop in exports from the U.S. that could hurt the economy here at home.
Another potential problem is the so-called “yield curve.” That’s the difference between short-term and long-term interest rates. Right now the yield curve is very flat which means there isn’t much incentive for lenders to make loans. That could lead to a slowdown in the economy.
Finally there’s always the possibility that something unexpected could happen like another terrorist attack or a major natural disaster. If something like that were to occur it could throw the entire economy off course and cause the Fed to delay its rate hike.
So there you have it: the most likely scenario is that the Fed will raise rates in September but there are a few things that could cause delays.
Will the Fed increase interest rates in 2020?
There is no clear answer as the Fed has not given any indication of when they plan to increase rates.
How often does the Fed typically increase interest rates?
The Fed typically increases rates every few years but the timing depends on a variety of economic conditions.
Will the Fed increase rates if the economy is weak?
The Fed may increase rates if the economy is stronger than expected but it is unlikely to do so if the economy is weak.
How do higher interest rates affect consumers?
Higher interest rates generally make borrowing more expensive for consumers and can cause debt payments to increase.
How do higher interest rates affect businesses?
Higher interest rates can make it more expensive for businesses to borrow money and can cause some businesses to slow down their investment plans.
How do higher interest rates affect stocks?
Higher interest rates can cause stock prices to fall as investors may believe that companies will have a harder time making profits.
How do higher interest rates affect bonds?
Higher interest rates can cause bond prices to fall as bonds become less attractive to investors when rates are rising.
How do higher interest rates affect the housing market?
Higher interest rates can cause the housing market to cool off as higher mortgage rates make buying a home more expensive.
What is the Federal Reserve’s main goal when it comes to interest rates?
The Federal Reserve’s main goal is to promote stability in the economy by keeping inflation in check.
How does the Fed usually fight inflation?
By raising interest rates the Fed can make it more expensive for businesses to borrow money and thus slow down the economy.
What is the danger of the Fed fighting inflation too aggressively?
If the Fed fights inflation too aggressively it could cause the economy to enter a recession.
How does the Fed know when to raise interest rates?
The Fed assesses a variety of economic indicators in order to make a decision on when to raise rates.
What happens if the Fed raises rates too quickly?
If the Fed raises rates too quickly it could cause the economy to enter a recession.
What happens if the Fed raises rates too slowly?
If the Fed raises rates too slowly inflation could start to rise rapidly and become a problem for the economy.
What is the Fed’s ultimate goal when it comes to interest rates?
The Fed’s ultimate goal is to promote stability and maximum employment in the economy.
