The Federal Reserve left short-term interest rates unchanged Wednesday, but signaled after a meeting marked by internal divisions that it still expected to raise them before year-end. Its stance underscored the lack of urgency the U.S. central bank’s leadership feels about lifting rates when inflation is lingering below its 2% goal and the unemployment rate is holding steady at a low level just under 5%.
Global stocks edged lower Wednesday as the possibility of higher U.S. interest rates quelled investors’ appetite for risk.
The Stoxx Europe 600 inched down 0.3% in morning trade, following losses on Wall Street and in Asia.
Futures pointed to a small opening loss for the S&P 500. Changes in futures don’t necessarily reflect market moves after the opening bell.
Minutes from the Fed’s April policy meeting, due later Wednesday, could offer insight into the possibility of a U.S. interest rate increase in June.
Upbeat U.S. inflation and industrial production data, as well as speeches from Federal Reserve officials including Atlanta Fed President Dennis Lockhart and Dallas Fed President Robert Kaplan on Tuesday, raised market expectations for interest rate rises this year, weighing on stocks while boosting the dollar.
“I think that the data to my mind are lining up to make a good case for rate increases in the next few meetings, not just June, which means it’s very live in terms of that,” San Francisco Fed President John Williams said in an interview with The Wall Street Journal.
President Barack Obama’s nominee for Federal Reserve Chair Janet Yellen stands in the State Dining Room of the White House in Washington, Wednesday, Oct. 9, 2013, where the president announced he is nominating Yellen to be chair of the Federal Reserve, succeeding Ben Bernanke. (AP Photo/Charles Dharapak)
Let’s be blunt. Barack Obama is still in denial about the sorry state of the economy, and so are both parties in the stalemated Congress. The government is consumed by wrong arguments about the wrong crisis, while the Federal Reserve keeps pointing out discreetly that the economy is still sick. Prosperity is not just around the corner.
Obama has a way to break out of this mess. Instead of wrangling with know-nothing Republicans over how to cut spending and make things worse, the president should make his “grand bargain” with the Federal Reserve. Together, they can develop an aggressive agenda to stimulate job creation and create the new demand the stagnant economy needs. The president’s explicit support would give the Fed the political cover it needs to use its powers of money creation and directed lending for unusual intervention in the economy. The central bank created $3 trillion in new money to refloat the financial system. It should do something similar, but more modestly, to restore the real economy.