Last year saw three bumps in rates from the Federal Reserve, pushing the APR on credit cards, loans, and savings vehicles up to a level that either frustrated or profited – depending on whether you borrow or lend. The year 2018 also noted the head of the Fed as predicting that 2019 could see three more raises. This week’s update from the organization put those estimates aside, for now. It appears we won’t be seeing another bump in the near future, after all.
Last Year vs. Now
Why the change of heart? While 2018 led Federal Reserve Board Chairman Jerome Powell to state that these raises were necessary for a gradual return to “normal” to sustain what was seen as a strong economy, he was mindful of raising rates too quickly. Many consumers and businesses are still climbing back out of the pits of the 2008 recession; the Federal Reserve’s pushing too hard on the gas could undo gains made over the past decade.
Waiting too long, however, could put the economy into a weak position of price spikes, or even bubbles. It’s a delicate balance that leads to much criticism of the Fed, much of it coming from President Trump, himself.
No Rate Increase Soon
That leads us to Wednesday’s announcement that there will be no initial 2019 rate hike, and –quite possibly—no hikes at all in this current year. MarketWatch notes that the last time inflation ran consistently above 3% was 26 years ago. Despite efforts to manipulate prices above a “danger zone,” Chairman Powell and officials haven’t seen the change they want. As a result, they are reconsidering the traditional methods. This includes actively raising key interest rates.
According to Powell, “We are almost 10 years deep into this expansion and inflation is still not clearly meeting our target.” He’s adjusting the course to sit still, be patient, and wait the markets out a bit.
What are they waiting for, exactly? Despite a tight market, highlighted by record low unemployment and fast wage growth, inflation is down. This is happening despite the three rate increases by the Fed in 2018. All of the formulas of the past say that this shouldn’t be possible, and (yet) it is. In fact, low inflation doesn’t seem to be a symptom of anything, at all. Rather, it’s a new kind of normal.
Change May Not Be Coming
With PCE (Personal consumption expenditures) not topping 2.6% in over two and half decades, it seems that this will be the way it is for the uncertain future. Some experts warn that inflation could spike at any time, and we’ve seen this in the past.
For now, however, the Fed seems to have abandoned its assumption that it can motivate inflation rates one way or another. Sitting these next few rounds out is their preferred method of action, and 2019 looks to be a quiet year from our friends at the Federal Reserve.
This article was originally written on March 25, 2019.