As recently as a few weeks ago, conventional wisdom believed that the Federal Reserve would be raising the fed funds rate this year.The Wall Street view according to the mid-December CNBC Fed Survey was that the Federal Reserve would raise interest rates this summer for the first time since 2008, when it lowered the fed funds rate to nearly zero (the “fed funds rate” is the interest rate that banks charge each other for overnight loans).That survey — based on the opinions of thirty-eight top money managers, investment strategists, and professional economists – came on the heels of Fed chair Janet Yellen telling reporters that the fed funds rate would likely stay where it is for the first quarter of 2015 then gradually rise. The feeling was that a falling unemployment rate and expanding economy would lead to unacceptable inflation if interest rates don’t rise soon.
However, San Francisco Federal Reserve President John Williams said this week that the Fed is in no hurry to raise interest rates in 2015. He sees no risks to increased inflation by leaving rates unchanged – some economists believe that raising rates too soon would actually cause inflation to rise.Regardless of when the rates do rise, the consensus is that the increases will probably be gradual as indicated by Yellen and stretched out over several years.
(The Federal Reserve System, which is also known as the “Federal Reserve” or simply the “Fed”has been the central banking system of the United States for over a hundred years. Having both public and private elements, it is composed of the Federal Open Markets Committee, a Board of Governors and twelve regional Federal Reserve Banks. The Fed’s goals in setting monetary policy for the country are to maximize employment, stabilize prices, and moderate long-term interest rates.The markets often hinge on any rate moves imposed by the Fed, and can rise or fall based merely on the wording used by the Fed in its press releases.)