This past February I was asked in an interview when I thought the Federal Reserve would raise interest rates. In an opinion I now regret, I told my interviewers that I thought rates would be raised in June. At the time the sixth board member had just come out in favor of a rate hike and it seemed all but certain. Nevertheless, as we all know, the Federal Reserve has yet to raise interest rates. This has been for a variety of reasons. The Federal Reserve is still worried about the state of the United States Economy and volatility abroad. As Janet Yellen said, she is waiting until “the labor market improves further and inflation moves back to our 2% objective” (“Janet Yellen Expects Interest Rate Increase This Year”). Furthermore, there are questions about how a further strengthened dollar would affect the United States economy given the state of other currencies. Exports and cross-border M&A in particular could be drastically affected. United States exports are already on track to decline this year for the first time since the 2008 financial crisis.
But one has to question whether this long lasting unwillingness
to increase rates is hurting the economy both at home and at large. Many major economies have suffered their worst quarters in years. Almost $11 trillion in value has erased from global shares. Emerging-markets have been hit particularly hard. While some of this is certainly due to instability in China’s economy, it is also in large part due to uncertainty surrounding the Federal Reserve’s plans. A clearly outlined plan and timetable for interest rates would add a stablizing note to the current cacophony that is the world economy.
Ari Kaissar NYU Stern Class of 2018 B.S. in Finance and Statistics Email: firstname.lastname@example.org