The Wall Street Journal has been out on the street asking economists when they think the Federal Reserve is likely to begin increasing the Fed funds rate. Unlike Jay Leno’s interviews with average people on the street, not one economist asked, “What’s the Fed funds rate?”
Although a few diehard economists (6 percent) believe a June or July increase is possible, the rest expect liftoff in September or later. The Journal explained the circumstances that have gotten us to this point:
“The Fed has kept short-term interest rates pinned near zero since December 2008 to support the U.S. economy through a financial crisis, recession and slow recovery. Officials have signaled they expect to begin raising rates sometime this year. The central bankers say [they] want to see continued improvement in the job market, and they want to be “reasonably confident” that too-low inflation will soon move back toward their 2 percent annual target.”
Employment has been moving in the right direction and Fed estimates suggest inflation may reach 1.8 percent during 2016, so what’s the hold up? Some Fed officials are concerned the American economy has lost momentum, and they’re not alone.
When the Journal asked analysts to estimate gross domestic product (GDP) growth for 2015, 2016, and 2017, their June estimate was 2.1 percent. That’s considerably lower than their March estimate of 2.9 percent. The Fed’s March estimate of GDP growth in 2015 was 2.5 percent. A revised June growth projection should be out this week. If expectations deteriorate, it’s possible the Fed may decide rates shouldn’t go much higher.
Analysts’ estimates for the 2015 Fed funds rate declined to 0.58 percent from 0.83 percent in March indicating they believe the Fed may not raise rates as much as had previously been expected.