commodity
Federal Reserve Leaves Rates Untouched
The Federal Reserve has yet again failed to change interest rates.
Interest rates have remained frozen since last December.
Rates remain the same
Janet Yellen, Chair of the Federal Reserve, announced on June 15th that yet again interest rates would remain the same, despite slow signs of growth in some regions of the economy.
Interest rates rose for the first time since the financial crisis in December 2015, and the Federal Reserve have not raised the interest rate since.
Why do rates remain frozen?
The Federal Reserve is currently reluctant to increase interest rates for some reasons, these include:
- The rate of employment has slowed down
- Fixed investments in business have been cautious
- Market measures of inflation have fallen
- The upcoming UK referendum regarding the EU
- The German 10-year bund remains small
The key focuses for keep interest rates unchanged, however, have been the decline in the job market and the EU referendum in the UK (Brexit).
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Slow Jobs Market
The slowdown in the jobs market has concerned the Federal Reserve.
Work vacancy production plummeted in May 2016, the Federal Reserve are planning to review the figures in July to see if there are signs of improvement in the jobs market this month.
The vacancy production in the US fell to the lowest levels in six years in May 2016.
While the figures for job production are disappointing, Loretta Mester, Federal Reserve President in Cleveland, has reportedly stated that we should not focus on one number too much.
She believes there are many factors to take into consideration such as seasonal demands.
Job production has been falling since February when the rate of job production was 233k.
The rate fell to 186k in March and 123k in April.
The last recorded figure was in May when job production dropped to 38k.
Yellen has said that the upcoming Brexit has influenced the Federal Reserve's decision to keep interest rates unchanged.
Opinion polls for the upcoming referendum show that results are still close.
Yellen has warned of the possible financial consequences that the results of the referendum could have on global markets.
The Bank of England has recently stated that the UK leaving the EU would cause a global financial crisis.
Signs of growth in the markets
Although it may not appear so, there is evidence of growth in the US economy.
The Federal Reserve predicts that unemployment will remain below 5% for the next three years.
Earlier this month there were reports that the manufacturing industry experienced an unexpected boost.
Manufacturing companies have welcomed the news, but they have remained cautious.
They have called the increase a move in the right direction.
The journey to economic recovery
There have been signs of a US recovery for years.
With this in mind, lack of change in interest rates have surprised and frustrated many.
The US economy started to show signs of growth back in the second half of 2009.
Current production of services and goods have risen 10% higher than its pre-recession figures, and is 15% higher than the lowest point during the recession.
The slowdown in growth, however, predates back before the recession.
The decline of growth is due to some different factors:
- The number of people reaching retirement age is increasing
- The younger generation is studying post-secondary education
- Job hunters are slowing down their search
- Many individuals in part-time employment would prefer full-time jobs
The US economy has had a slow journey to recovery, and there is still a long way to go.
The Federal Reserve's interest rate policy has played its part.
Only so much will protect the US from the potential global economic breakdown.
Summing it up
The current state of the US interest rates has frustrated many people; Janet Yellen and the Federal Reserve have been determined to keep interest rates at a steady level for six years.
There has only been one increase in six years, and the next growth is uncertain.
There are many reasons for the Federal Reserve's reluctance to increase interest rates, mainly the current lack of job production and the upcoming UK referendum.
The fall of job production in May has had many people alarmed.
However, Loretta Mester has stressed that we cannot focus on one figure.
The upcoming UK referendum has the potential to cause an economic catastrophe.
The UK public remains evenly divided with opinion polls showing an almost 50-50 split.
The US has come a long way in its journey to recovery, but there is still a long way to go.
