By Isaac Cohen*
Last week, the central bank decided to leave interest rates near zero because the US economy, after another winter slowdown, has not yet exhibited a sustained pace of expansion. As recognized by Federal Reserve Chairwoman Janet Yellen, at a press conference held after the last meeting of the Open Market Committee, “my colleagues and I would like to see more decisive evidence that moderate pace of economic activity can be sustained.”
Within the central bank’s dual mandate of achieving maximum employment with price stability, there still is margin for accommodation. For the last three years, inflation has lagged behind the 2 percent objective, while unemployment, at 5.5 percent in May, is approaching the level at which supposedly it can generate inflationary wage increases.
In this context, economic growth projections were reviewed downwards by Federal Reserve officials. Released on the same day of the press conference, the economic growth projection for this year will be between 1.8 and 2 percent, less than the relatively more optimistic projection, released last March, of between 2.3 and 2.7 percent.
Also, Chairwoman Yellen emphasized that “sometimes too much attention is placed on the timing of the first increase in the federal funds rate.” After liftoff, perhaps by the end of the year, interest rates are projected to increase gradually to reach 3.75 percent until the end of 2017.
*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio. Former Director, UNECLAC.