On Wednesday, the Federal Reserve Chair, Janet Yellen, confirmed that there would not be an interest rate hike in June. While this might seem like bad news, the good news is that Yellen is suggesting the hike will be in September, although Yellen said no decision has been made yet as to when the increase would happen. Yellen did say “certainly, an increase this year is possible” which leaves the door open for a September hike, and it also says the Fed is looking for the economy to get into an even better place really soon.
Yellen said that progress has been made, although further improvements to wage increases and inflation needs to be closer to the 2 percent target before the increase happens. Once the fed hike happens, it would signal that the central bank believes the economy is almost back to full strength after the economic collapse of 2008. The economy expanded last year at a rate of 2.4 percent, and policymakers had hoped this year would be even better, although it’s looking like the predictions are going to only 1.8 percent to maybe 2 percent. The lack of a healthy growth rate is also why the fed is a little reluctant to raise the interest rates. If you are looking to buy, do it this summer because this summer will likely be the last time the rates will be near 0 percent for quite a while.
Wall Street has been very anxious about the rate hike, since it’s been nearly 10 years since there has been a rate hike, and investors are not quite sure how to react. The low interest rates have helped companies borrow money to help them expand and grow, and the low rates have also helped the stock market gain quite a bit of money. After Yellen made her announcement, the stocks rallied to end the day with a .2 percent gain. It was almost a given that Yellen would not announce the rate hike this month, especially with the economy shrinking back in the first few months of the year, and the consumer spending remained slow. However, the economy and consumer spending has been getting better in the past couple months, but it was not enough to justify the rate hike for June. There are a couple things still to be worried about, which is that the American dollar is harming companies overseas, and consumers are still not really spending money. Investors thought that the money people were saving at the gas pump would be spent in the economy, like at retail and grocery stores, but this is not happening.
In March, the Fed committee lowered 2015 growth to about 2 percent, with it expecting to be about 2.3 percent to 2.7 percent. The lowered projection just shows how low the first quarter numbers really were, and the strong American dollar is being blamed for a lot of the lowered projection. The strong US dollar has made it harder for companies to sell their goods overseas, such as cars and computers.
One good thing though is that saving in America has actually went up, with the annual savings rate being 5.6 percent, which is higher than it was a year ago. Pre-recession savings was around 3 percent, so there is good news that Americans are starting to save more, which is likely where the money being saved in gas is going. Even though that does nothing for the economy, it is showing that Americans are becoming more alert to having an emergency account and making sure they have money in case of another economic collapse or economic disaster. The main question is how much of all of these things will play into the summer months, such as if consumer spending will pick up and if inflation will also pick up in the next couple months. For now, it seems that there will be a hike coming in September, although it’s not known exactly what this will due to the economy, so caution is going to be the word for the next few months. Since there will likely be a hike in September, it’s more than accurate to assume this will be the only rate hike for the year, since there will need to be a lot of watching to see what happens after the hike occurs. So for Americans, if you need to buy, then do it now, because it’s going to be the last time in a long time you will get these low interest rates.