By Isaac Cohen*
Now that the winter slip in US economic growth appears to be the result of transitory factors, the attention has turned again to the widely expected increase by the central bank of the federal funds interest rate. In a recent speech in Cleveland, Ohio, the Chairwoman of the Federal Reserve Janet Yellen provided further guidance on when the liftoff may happen. She said, “I expect that it will be appropriate at some point later this year to take the first step…”
However, Chairwoman Yellen recalled, interest rates have been kept close to zero, since 2008, because the economic recovery has been slow. True, at 5.3 percent in June, unemployment is approaching the level at which it can generate inflation, but the slow pace of wage increases reveals the labor market has not fully recovered. Meanwhile, inflation remains under the objective of 2 percent, due partly to the appreciation of the dollar and the fall in oil prices. Given the persistence of these restraining factors, Chairwoman Yellen anticipates, the pace of monetary policy normalization will be gradual.
In what is left of this year, there remain three more meetings at which of the Open Market Committee can decide to modify the federal funds rate, on September 16-17, October 27-28 and the last one on December 15-16.
*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio. Former Director, UNECLAC.
