WASHINGTON (AP) – The latest on the Federal Reserve’s decision to keep interest rates at historic near-zero lows (all times local):
China has clearly crept into the Federal Reserve’s thinking.
Fed officials stressed that they are “monitoring developments abroad” and that the global slowdown might restrain U.S. economic growth and inflation levels.
This was a not-so-subtle gesture toward China, the world’s second-largest economy.
China’s economy has slowed for four straight years – from 10.6 percent in 2010 to 7.4 percent last year. The International Monetary Fund expects the Chinese economy to grow just 6.8 percent this year, slowest since 1990.
A 1 percentage point decrease in China’s economic growth would reduce U.S. growth by 0.2 percentage points, according to estimates by Mark Zandi, chief economist at Moody’s Analytics.
Federal Reserve officials’ projections for the U.S. economy help to explain why the central bank delayed a rate hike.
Fed officials revised down inflation. The median estimate for inflation is now a modest 0.4 percent this year, down from 0.7 percent in the June projections. The Fed targets inflation at 2 percent, a level the projections say won’t be achieved until 2018.
This indicates that they’re still waiting for signs that inflation – which has largely faded because of cheaper oil prices and a stronger dollar – will pick up.
Fed officials see growth as slightly stronger this year than they did in June. They also anticipate the unemployment rate falling from its current 5.1 percent to a median of 4.8 percent next year.
The Federal Reserve is keeping interest rates at historic lows for at least another month.
Pressure had been building as to when the U.S. central bank would hike rates from near-zero after Fed Chair Janet Yellen said in congressional testimony that it would likely be later this year. But Fed officials held off Thursday after a two-day meeting because inflation is running well below their 2 percent objective and “recent global economic and financial developments may restrain economic activity somewhat.”
It’s extremely rare for Fed officials in their statement to highlight the risks posed by foreign economies. This means that they’re carefully monitoring the aftershocks from a slowdown in China and other emerging markets, in addition to struggles by Europe to increase economic growth.
Fed officials meet again in October and December.
Strange as it sounds, the social justice movement is united with Wall Street in opposition to a Federal Reserve rate hike. Protesters clad in green t-shirts rallied outside Fed offices. They hoisted signs that linked monetary policy with the racial disparities behind the “Black Lives Matter” movement.
“Black America is still in a Great Recession,” read one sign.
“Don’t raise the interest rate,” the group collectively chanted, arguing that the Fed will eventually encourage faster wage growth by holding rates at the near-zero level they have been at since late 2008. The group is questioning the presence of inflation in the economy – since rising prices have historically triggered rate hikes.
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