Wednesday, December 14, 2016

Economists Predict Small US Interest Rate Climb

Top U.S. central bank officials are widely expected to raise the key interest rate slightly Wednesday, and investors are watching closely for clues about how much higher rates will go and how fast they will climb over the next year or so.

Officials are likely to raise the key rate a quarter of a percent to a range between half- and three-quarters-of-one-percent. That is still very low by historic standards and is the first rate increase in a year. During the recession, the U.S. Federal Reserve slashed the rates nearly to zero in a bid to boost economic growth by making it cheaper to borrow money needed to buy homes, build factories and hire people.

Economists say the U.S. job market and housing sector have largely recovered from the recession and no longer need such help. Experts say keeping interest rates too low for too long leaves the Fed without the tools it needs to bolster the economy when the next downturn hits. It also raises the risk of sparking strong inflation that could hurt the economy.

Experts quoted in financial media expect the Fed to boost rates two more times over the next year.

In the meantime, other economic reports show retail sales rose 3.8 percent in November from the same month the previous year. PNC Bank economist Gus Faucher says that is a sign that consumer spending is off to a strong start in the vital U.S. holiday period that ends in late December. Economists watch retail sales closely because consumer demand drives most U.S. economic activity.

A separate report on inflation at the wholesale level shows prices rising a bit faster, which could eventually affect those paid by consumers, according to experts at Wells Fargo Bank.

Previous Post
Next Post

post written by: