Speculation early this year was that the Federal Reserve would likely raise interest rates in June, but now most experts say that decision has at least been pushed back to September. NC State University economist Mike Walden discusses what’s behind the postponement.
“And indeed there are some indications that it’s not even going to happen this year, so we are looking probably at beyond September. Well, I think the reason has to do with the dual mandate of the Federal Reserve: Congress has told the Federal Reserve, ‘Federal Reserve, we want you to do two things: We want you to keep a lid on inflation, but we also want you to enact policies that are going to cause the labor force and labor market to grow and the unemployment rate to go down.’
“Right now, as the Federal Reserve looks out on the economic environment, they don’t see many signs of higher inflation either now or down the road. So they really don’t have to worry about inflation. That would be one reason why they wouldn’t raise rates, if they were worried about inflation.
“On the other hand they do see many concerns in the labor market. Now the unemployment rate has come down, but we still have lots of folks out there who want a job and don’t have a job. We are not seeing incomes rise very fast. We still have a lot of folks working part-time who would like to have full-time work.
“So I think the Federal Reserve right now is saying, ‘You know what? If we are looking at these dual mandates, we don’t really to worry about inflation, but we still have to worry about the labor market.’
“I think until we see either inflationary pressures, number one, or number two, we see the labor market improve a lot faster than it is now — I think until either of those two things happen, we are not going to have a lot of push for higher interest rates.”