The Cable

U.S. Fed Chief Janet Yellen Cancels ‘Liftoff’ of U.S. Interest Rates

U.S. Fed chief Janet Yellen has pulled the plug on an interest rate rise yet again.


Since the American economic recovery took hold, Wall Street analysts, politicians and U.S. Federal Reserve watchers around the world have pondered one very specific and very consequential question: When will Fed chief Janet Yellen raise interest rates as a show of confidence in the growing strength of the American economy? Interest rates haven’t gone up since 2006, before the start of the Great Recession. Yet Yellen’s answer throughout the year, and again Wednesday in a Federal Reserve statement, has been crystal clear even as it is sneakily elusive:

Maybe. But not today.

In the statement, the Fed said the United States is on firm fiscal ground. But there are concerns about specific issues that have a huge impact on the global economy. This time, it’s the falling price of oil that has Yellen and Fed officials concerned.

So those waiting for the so-called “liftoff,” or rates going up from near zero percent, can put away their stopwatches, at least for now.

The last time, earlier in July, it was Greece and China that had Yellen spooked. In the statement Wednesday, Yellen said risks to the U.S. economic outlook are “nearly balanced,” a reference to the continuing worries that something could derail recovery. Chinese stocks’ free-fall and uncertainty about whether Greek Prime Minister Alexis Tsipras would be able to push through reforms needed to get his hands on billions in European bailout funds still are crises that have yet to be resolved. Both have sent the Dow Jones Industrial Average down triple digits this year.

So let the guessing game begin. Will Yellen raise rates, making it more expensive for American businesses and individuals to borrow, in September, or December? If Greece deteriorates, or if China can’t stop its stock slide, will it happen at all this year?

“Today’s more upbeat statement, particularly as it relates to the labor market, could be a sign that the [Fed Open Market Committee] is more likely to move in September than December,” Stuart Hoffman, chief economist at PNC Financial Services, said in a research note circulated Wednesday. “Unless conditions deteriorate in the next few months, a rate hike is coming this year.”

Even without the rate hike, the Fed statement praised “moderate” growth in consumer spending, and “additional improvement” in the U.S. housing market. Job growth is also looking increasingly better.

“The labor market continued to improve, with solid job gains and declining unemployment. On balance, a range of labor market indicators suggests that underutilization of labor resources has diminished since early this year,” the statement said.

Photo credit: Chip Somodevilla/Getty Images

David Francis was a senior reporter for Foreign Policy, where he covered international finance. @davidcfrancis

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