When Will The Fed Raise Interest Rates

It’s one of the most anticipated decisions in markets: when will the Federal Reserve start raising interest rates?

The Fed has kept rates near zero since the Great Recession to encourage borrowing and risk-taking. That’s helped spur economic growth but also caused concerns about inflation and asset bubbles.

Now with the economy seemingly on solid footing and inflation picking up the central bank is getting closer to pulling back the stimulus.

Many experts expect the Fed to start raising rates in mid-2015. But the timing could change depending on a number of factors including the strength of the economy inflation and geopolitical risks.

Here’s a look at some of the key issues the Fed will be weighing in the months ahead:

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The state of the economy: The U.S. recovery has been sluggish by historical standards but it has nonetheless been steady. The economy has added jobs for 57 straight months and the unemployment rate has declined to 5.9%.

One key metric the Fed will be watching is wages. While job growth has been solid wage growth has been weak a sign that many Americans are still struggling to make ends meet.

The Fed wants to see sustained improvement in the labor market before raising rates. So if job growth and wage growth cool off the central bank could put rate hikes on hold.

Inflation: The Fed has a dual mandate to promote maximum employment and stable prices. After years of low inflation prices are starting to creep up.

The Fed’s favored inflation measure which is based on consumer spending has risen 1.7% over the past 12 months. That’s still below the Fed’s 2% target but it’s moving in the right direction.

If inflation accelerates too quickly the Fed could move to raise rates sooner. But if inflation remains low the central bank could decide to wait longer.

Geopolitical risks: From the crisis in Ukraine to the Ebola outbreak in Africa there are a number of potential threats that could derail the global economy.

If any of these risks materialize it could cause the Fed to hold off on rate hikes.

The bottom line: The Fed has said it will start raising rates when it sees sustained improvement in the labor market and is reasonably confident that inflation will move back toward its target.

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Many experts think the central bank will start tightening monetary policy in mid-2015. But the timing could change depending on the state of the economy inflation and geopolitical risks.

What is the Federal Reserve?

The Federal Reserve is the central banking system of the United States.

What is the role of the Federal Reserve?

The role of the Federal Reserve is to promote the conditions that enable economic growth and stability.

What are the three main tools the Federal Reserve uses to achieve its goals?

The three main tools the Federal Reserve uses to achieve its goals are monetary policy supervisory and regulation policy and financial services policy.

What is monetary policy?

Monetary policy is the process by which the Federal Reserve manages the money supply in order to promote economic growth and stability.

What is the difference between expansionary and contractionary monetary policy?

Expansionary monetary policy is when the Federal Reserve increases the money supply in order to stimulate economic growth.

Contractionary monetary policy is when the Federal Reserve decreases the money supply in order to slow down economic growth.

What is the federal funds rate?

The federal funds rate is the interest rate at which banks lend money to each other overnight.

What is the relationship between the federal funds rate and interest rates?

The federal funds rate is the benchmark interest rate that determines other interest rates.

When the federal funds rate rises other interest rates usually rise as well.

What is the relationship between interest rates and the economy?

Interest rates and the economy have an inverse relationship – when one goes up the other goes down.

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Why does the Federal Reserve use interest rates as a tool for monetary policy?

The Federal Reserve uses interest rates as a tool for monetary policy because changes in interest rates can influence economic activity.

When the Federal Reserve wants to stimulate the economy what does it do?

When the Federal Reserve wants to stimulate the economy it lowers interest rates in order to encourage borrowing and spending.

When the Federal Reserve wants to slow down the economy what does it do?

When the Federal Reserve wants to slow down the economy it raises interest rates in order to discourage borrowing and spending.

How does the Federal Reserve implement changes in interest rates?

The Federal Reserve implements changes in interest rates by buying and selling government securities in the open market.

What is the relationship between the federal funds rate and the stock market?

The federal funds rate and the stock market have an inverse relationship – when one goes up the other goes down.

What is the relationship between the federal funds rate and the housing market?

The federal funds rate and the housing market have an inverse relationship – when one goes up the other goes down.

What is the relationship between the federal funds rate and inflation?

The federal funds rate and inflation have a direct relationship – when one goes up the other goes up.

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