Posted by: SWL | September 17, 2015

Cowardly Federal Reserve Does Not Raise Interest Rates

I was disappointed, but not surprised, that the Federal Reserve Board did not raise interest rates at their meeting today.

Rates have been at this level (near 0%) for nine years now; it’s time to begin a gradual increase. Bond rates, 401Ks and savings accounts are all suffering, which impacts small investors, retirees and families far more than an increase would hurt big business and banks.

The low interest rates were touted to help businesses borrow money to expand during the “Great Recession”, but banks kept a tight hold on their money, preferring to hoard and/or invest themselves. And businesses generally didn’t feel they could afford to borrow money even at low interest. The low prime rate set by the Fed gave banks an excuse to lower the interest rates paid to savings accounts, even for those who in the past were considered premium customers.

My opinion is that Fed members are afraid of the political fallout if they raise rates. It wouldn’t surprise me if the current administration is putting pressure on them to keep rates low. After all, if rates increase, the interest the federal government pays on the national debt will rise. That would put a strain on the federal budget, and increase calls for decreased spending and a balanced budget – two things the Obama administration has been adamantly against.

The government should stop meddling in the national economy. Market factors might be a bit volatile in the short term as necessary corrections naturally occur. But in the long-term, the economy will settle where it belongs and growth can begin again.

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