News Column

When Will Interest Rates Rise?

June 24, 2014

Isaac Cohen -- HispanicBusiness.com

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

Officials prefer not to answer questions based on what may happen. They do not like to answer hypothetical questions.

Last week, at the press conference held at the conclusion of the meeting of the Open Market Committee, Federal Reserve Chair Janet Yellen was asked to clarify when interest rates will begin to increase. This is the crucial question about the future orientation of U.S. monetary policy.

On this topic, the statement issued at the end of the Federal Reserve meeting reproduced the declaration that the federal funds rate will be kept close to zero "for a considerable time."

Recent indicators of economic performance support this accommodative posture.

Economic growth projections for 2014 were revised downward, after the winter slip of January and February, from close to 3 percent to 2.2 percent.

Additionally, unemployment still is elevated, at 6.3 percent, while inflation persists below the 2 percent objective.

Recognizing there is uncertainty in monetary policy, because the economic outlook remains uncertain, Ms. Yellen gave a hypothetical answer to the question "until when?"

She said the federal funds rate target is contingent on the economic outlook. If the economy proves to be stronger than anticipated, interest rate increases will occur sooner.

Conversely, if economic performance disappoints, interest rate increases will take place later and will be more gradual.

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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.


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