The Federal Reserve is caught between the unusual tandem of low unemployment and sluggish inflation, a dilemma USA Today says poses challenges for policymakers weighing whether to raise interest rates.
The Fed almost certainly will raise its key short-term rate by a quarter percentage point to a range of 1% to 1.25% at a two-day meeting that concludes Wednesday. It would be the third such hike since December.
Bankrate says the move will likely trigger a similar increase in rates for credit cards, adjustable-rate mortgages and home equity loans. Many economists believe the Fed will stick to its forecast of another rate increase in 2017 after Wednesday, and Fed Chair Janet Yellen will lay out a plan to begin gradually shrinking the agency’s $4.5 trillion balance sheet as early as this fall.
That’s expected to nudge up long-term rates.
But wage growth, and inflation more broadly, have been stubbornly low despite tumbling unemployment. The 4.3% jobless rate should force employers to bid up salaries to attract workers. That’s happening, but not as rapidly as expected. Partly as a result, the Fed’s preferred measure of annual inflation has retreated further below its 2% target.
