The Federal Reserve’s two-day September meeting begins on Wednesday. During that meeting, officials will decide whether or not to increase interest rates by a quarter of a percentage point.
Since 2008 the Federal Reserve has kept interest rates at record lows in order to boost spending and economic growth and lower the cost of borrowing. The last time the Fed raised rates was in 2006.
Joining us to discuss the possibility of an interest rate hike this week, and its potential impact, are Michael Miller, associate professor of economics at the Driehaus College of Business at DePaul University, and Edward Stuart, professor emeritus of economics at Northeastern Illinois University.
See a chart of the Fed funds rate (the interest rate banks charge each other) from 1971-2015.
Earlier this year, Janet Yellen, the chair of the Federal Reserve Board of Governors, has said the U.S. economy is moving forward and that it was time to raise interest rates.
So far, the Fed hasn’t taken that step. While many have jitters that Yellen might make that announcement on Thursday, both Michael Miller and Edward Stuart don’t think she will.
“If I had to bet, I’d say no, I don’t think they’ll raise rates. The rest of the world doesn’t want us to do this,” said Stuart, professor emeritus of economics at Northeastern Illinois University. “The stock market’s down, the dollar’s high enough and inflation is low enough. There’s no compelling reason to raise rates.”
Miller agrees, saying there’s still too much uncertainty in the economy.
“But they’ve hinted they’ll definitely do it by the end of year,” he added.
If it were up to him to decide whether or not to raise interest rates, Miller says he would be inclined to do so.
“It’s only a quarter of a percent. I don’t think anything terrible will happen either way,” he said. “When you look at it historically, it’s still extremely stimulative, historically very low even if they do raise the rate. If our economy’s that weak that a quarter of a percent interest hike throws us into panic, then we have much bigger issues than whether the interest rates are too low. If I had to make a decision though, I’d raise the rates. It’s time for the easy money party to come to an end.”
A jittery stock market isn’t reflective of fears of an interest rate hike, according to Miller.
“Here’s what’s spooking Wall Street—the Feds can’t agree. They have strong voices on both sides of this. There’s a very vocal split. The markets see this disagreement and uncertainty, and it makes them nervous,” he said.
Even if Wall Street were impacted by a rate increase, it’s not a top concern of Stuart’s.
“I don’t really care if Wall Street is harmed. What I care about is how government policy affects the middle class, and raising interest rates is bad for the working class. It makes car financing go up, student loan rates go up, buying a home becomes more difficult. It redistributes wealth from poor to rich,” he said. “Should the rate increase, yes, it might be felt on Wall Street, but I think a correction is going on already without a rate hike. People are slowly getting more realistic about what stocks should be.”