News Column

How Long Will Interest Rates Stay Low?: The Cohen Column

May 13, 2014

Isaac Cohen -- HispanicBusiness.com

Federal Reserve Chair Janet Yellen (file photo)
Federal Reserve Chair Janet Yellen (file photo)

Last week, Federal Reserve Chair Janet Yellen presented mandated testimonies on monetary policy to committees of both the House of Representatives and the Senate.

One of the main highlights of both presentations to the U.S. Congress was her polite but firm refusal to declare the exact date when the central bank will start increasing interest rates. Questioned in several ways, particularly by Republican representatives, Ms. Yellen declared that it all depends on the levels of employment and inflation.

Two weeks before, in a speech at the Economic Club of New York, Ms. Yellen presented the economic outlook as perceived by the members of the Federal Reserve Open Market Committee.

The projection is that maximum employment with price stability, understood as unemployment from 5.2 percent to 5.6 percent and inflation of 1.7 percent to 2 percent, will be reached by the end of 2016.

Additionally, the central bank recognizes that low real interest rates may be required for some time, after the achievement of the objective.

The answer to the question of how long interest rates will remain low depends on the answer to what Ms. Yellen called "three big questions": Is there significant slack in the labor market? Is inflation moving back toward 2 percent? And, finally, what factors may push the recovery off track?

In other words, the answer to "when?" is "by the end of 2016" -- or before, if necessary.

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Isaac Cohen is an international analyst and consultant, a commentator on economic and financial issues for CNN en Espaņol TV and radio, and a former director, UNECLAC Washington Office.



Source: HispanicBusiness.com (c) 2014. All rights reserved.


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