Although optimistic about the economy and the job market, the Federal Reserve will keep interest rates unchanged at its September 20-21 meeting. The Fed also pointed out that "the conditions for raising interest rates have gradually matured," suggesting that there may be a move to raise interest rates soon. However, three members of the decision opposed the decision, arguing that interest rates should be raised immediately. Market watchers, including AllianceBernstein, are wondering what signs the Fed will see before raising interest rates again. The Fed decides to "rule by inaction" The Fed's September 20-21 FOMC post-meeting press release stated that members of the board see the economy and the labor market as positive, and since the July meeting, "the labor market has continued to recover and economic activity has grown. The pace has also accelerated.” The Fed finally concluded that the conditions for raising interest rates are becoming more and more mature, and it is expected to gradually move towards the normalization of interest rate policy, but it still needs to be supported by “more evidence”.
It is worth noting that Federal Reserve Chair Janet Yellen said at the June press conference only three months ago: "The job market is showing signs of slowing down, and we have to make sure that the fundamental momentum of economic growth has not disappeared." Since June After the meeting, the number of new jobs has grown vigorously, with an average increase of 240,000 in a single month, and the annualized economic growth rate in the third quarter number list is currently over 3%, but even with these positive developments, the Fed said that more needs to be seen. Much evidence. How to get the Fed to raise interest rates? Yellen was asked at an Open Market Committee press conference in September for her "explanation" for not raising rates and changing her target. In her reply, although she pointed out that "We are generally satisfied with the progress of the U.S. economy", she did not specify the conditions for raising interest rates. The catalyst for the rate hike is also unknown. Better-than-expected labor market data over the past three months has been predicted by the Fed to not be enough of a factor to raise interest rates in September. To be sure, most Fed officials want to see further signs of improvement in inflation.
Yellen has said in the past that the Fed doesn't need to wait for inflation to hit its 2 percent target for it to normalize rates. But several directors, including Daniel Tarullo and Lael Brainard, raised objections, arguing that the long-term lack of inflation is a cause for concern, and they want to see more inflation. Evidence, only willing to raise interest rates again. Is there an accurate inflation indicator? The annual growth rate of the consumer price index (CPI) is currently at 1.1%, while the annual growth rate of the core CPI, which reflects the underlying trend of the economy, is 2.3%. However, when the Fed measures inflation, it prefers to use the personal consumption expenditures (PCE) deflator, which uses the CPI component, but with different weights; according to the August estimates, the current PCE is 1%, while the core PCE up to 1.7%. Assuming current trends remain unchanged and oil prices broadly stable, the two core price gauges are expected to approach or even exceed the Fed's 2% target in early 2017. But AllianceBernstein sees a problem with measuring inflation this way.