The Federal Reserve balked on an interest rate hike last week and maintained the near-zero rate, increasing uncertainty in the markets and driving down the Dow Jones Industrial Average 290 points Friday.
Fed Chair Janet Yellen explained that “residual effects of the Financial Crisis which are likely to continue to constrain spending for some time. As well as headwinds from abroad” are to blame for their hesitation on making a move on rate hikes.
China and market fear overseas are also factors influencing the Fed as they evaluate. Yellen noted, “Heightened concerns about growth in China and other emerging market economies have led to notable volatility in financial markets.”
Federal Reserve Bank of St. Louis president James Bullard slammed the inaction Monday morning on CNBC, saying, “The impact of China coming directly back to the United States is relatively small,” adding that the Fed should not base policy off of market volatility and concerns overseas.
CNN Money reports that throughout the press conference last Thursday, Yellen named China an unprecedented 16 times as she defended the Fed’s continued 0 percent policy. Many experts are questioning the Fed’s logic however, while investors are criticizing the Fed’s vague statements as creating more uncertainty and volatility.
“Frustration over the Fed’s vague rate hike plans helped cause the Dow to drop almost 300 points on Friday,” said CNN Money’s Matt Egan. “The irony is that the Fed seems to be helping cause some of the market turbulence that is keeping it from raising rates.”
Fueling further confusion was Yellen’s assertions that the domestic economy is showing positive signs of growth (which is why many thought the Fed would hike rates), but that global pressures and uncertainty still make it too risky.
Ann Saphir of Reuters asked Yellen whether this dynamic has locked the Fed into a box where they “may never escape from this zero” rate policy. Yellen, while downplaying that scenario, said, “I can’t completely rule it out.”
This reflects the narrative of more pessimistic economists who think the Fed’s policies over the past six years have left the economy in a no-win situation. Investors are worried that any rate hike will trigger a pullback in the markets, while additional monetary easing will just expand the already bloated debt market and create larger problems down the road.
Last year Reuters reported that at a private dinner with investors in New York City, former Fed chair Ben Bernanke remarked that he does not expect rates to normalize in his lifetime.
As for the future of interest rates, Bullard said Monday, “there’s a chance,” that the Fed could still hike rates in October or December, while some analysts’ say it won’t happen until 2016. CNN Money reports, however, that investors are beginning to question the Fed’s credibility and whether or not they have any control over the future health of the economy.
Content created by The Daily Caller News Foundation is available without charge to any eligible news publisher that can provide a large audience. For licensing opportunities of our original content, please contact licensing@dailycallernewsfoundation.org.
All content created by the Daily Caller News Foundation, an independent and nonpartisan newswire service, is available without charge to any legitimate news publisher that can provide a large audience. All republished articles must include our logo, our reporter’s byline and their DCNF affiliation. For any questions about our guidelines or partnering with us, please contact licensing@dailycallernewsfoundation.org.