Fed To Announce Whether It Will Raise Interest Rates

Mar 15, 2017
Originally published on March 15, 2017 7:51 am
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It's widely expected that later today, Federal Reserve Chair Janet Yellen will announce that the Fed has decided to raise interest rates by a quarter point. If it does, it would be only the third rate hike since the financial crisis started in 2008. NPR's John Ydstie reports that the Fed seems more anxious about raising rates now than it was just a few months ago.

JOHN YDSTIE, BYLINE: The pace of Federal Reserve interest rate hikes is picking up. Just think about it. After the Fed pushed interest rates to near-zero during the financial crisis, it was seven years before the first rate hike in December of 2015. The second rate hike came one year later this past December. But if the Fed boosts interest rates today, it will be the second time in just three months. Why the shift to a faster pace? Well, says former Fed governor Randy Kroszner, there was a presidential election.

RANDY KROSZNER: There's been a lot more optimism about economic prospects. Markets are up. Surveys of consumer and business confidence are up. That's a different environment than we've had over the last few years.

YDSTIE: That optimism has been fueled by President Trump's promises to cut taxes and regulation, boost spending on infrastructure and grow the economy by 4 percent a year. Alan Blinder, a former vice chair at the Fed, says he believes inflation danger is lurking in those promises.

ALAN BLINDER: If we get, for example, a multitrillion-dollar tax cut, that's likely to give a significant stimulus to an economy that doesn't need it.

YDSTIE: And, Blinder says, it could boost growth beyond the economy's potential and ignite inflation. Blinder, now a professor at Princeton, believes that's why the Fed is picking up the pace of its interest rate hikes. But Randy Kroszner, now a professor at the University of Chicago, is a bit more comfortable with Trump's policy proposals. He sees the potential for improving the economy through less regulation and a more efficient tax code. He says those changes could boost the productivity of U.S. workers. That would raise the economy's potential to grow faster without risking higher inflation. Kroszner points to the 1990s. Back then, former Fed Chair Alan Greenspan held off raising rates when he saw productivity rising rapidly.

KROSZNER: That allowed for more economic growth without the Fed having to fear the inflation pressure as much. So interest rates were not raised as much as they otherwise would have been.

YDSTIE: Still, Kroszner expects the Fed will raise rates later today - and a couple more times this year. But is there a danger the Fed might get too aggressive and raise rates so much the economy stalls? Alan Blinder doesn't think so.

BLINDER: About every third word out of Janet Yellen's mouth is gradual. So the way you make mistakes is being too vigorous, too much in a rush. It just seems to me unlikely that the Yellen-led Fed is going to do that.

YDSTIE: But, Blinder says, over the next year, consumers should expect modest increases in borrowing costs for things like auto loans and mortgages. John Ydstie, NPR News, Washington.

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