Thursday, January 28, 2016

The Fed Gets Nervous

Since the Federal Reserve raised interest rates last month, we've had a scary slide in the stock market that some have attributed to those higher rates. So it was no surprise that they didn't raise rates further in their announcement yesterday. The next chance for the Fed to raise interest rates comes at the end of March.

The upshot of the Fed's remarks was that labor conditions have improved while the economy has softened a bit, which is an unusual situation. "Household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further; however, net exports have been soft and inventory investment slowed," the report said. "A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources."

The Fed also noted that inflation continues to run below its 2 percent target, and it expects the figure to stay below that threshold in the short term, "but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further."

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