As the shaky U.S. economy begins to show signs of improvement, the question of when the federal government would begin to raise the federal funds rate is on the minds of many. The estimates released by several top officers of the Federal Reserve say that the interest rates will not begin rising until mid 2015, and then it will happen slowly.
Estimates from Chicago and Atlanta’s Federal Reserve
Both Charles Evans of the Chicago Federal Reserve Bank and Dennis Lockhart of the Federal Reserve Bank of Atlanta believe that the interest rates will not begin to rise until at least the second half of 2015. They both cited a possible need for longer waits as well, as raising the interest rates too soon could slow the current economic recovery.
Evans also said that when rates did begin to rise, they would most likely increase slowly, ending up at around 1.25 percent at the end of 2016. Lockhart agreed that when rates did begin to rise, they would do so at a pace that would not disrupt the economy and the financial environment too much.
Statements by Federal Chair Janet Yellen
Statements released by Federal Reserve Chair Janet Yellen indicated that rates could begin to rise as early as the first quarter of 2015. This announcement startled some investors who had been hoping for longer waits before rising rates. President Lockhart, however stated that he believed Yellen was speaking more about the earliest rates would begin to rise, not the latest.
It is almost universally accepted among Federal Reserve leaders that rates will begin to rise sometime in 2015. Given that most recognize the danger of rates rising too quickly, most believe they will rise slowly to protect the economy. A few dissenters, such as James Bullard of the St. Louis Federal Reserve Bank, believe the federal funds rate could be as high as 4 percent by 2016, but his opinions appear to be in the minority. Overall it seems that investors should prepare for potential increases around the midpoint of 2015.
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