{"id":1000,"date":"2015-09-24T09:22:52","date_gmt":"2015-09-24T15:22:52","guid":{"rendered":"http:\/\/gpswp.com\/apwealthmanagement\/?p=1000"},"modified":"2015-09-24T09:22:52","modified_gmt":"2015-09-24T15:22:52","slug":"fed-holds-interest-rates-other-options-available","status":"publish","type":"post","link":"https:\/\/gpswp.com\/apwealthmanagement\/fed-holds-interest-rates-other-options-available\/","title":{"rendered":"Fed Holds Interest Rates…Other Options Available"},"content":{"rendered":"
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Fed Holds Interest Rates…Other Options Available<\/h3>\n

September 23, 2015 | Print View<\/a><\/p>\n

In a much anticipated announcement the Federal Reserve decided to keep the Fed Funds rate at the zero to 0.25 percent range. This is the seventh year the rate has been in this exact range, since it was cut in the throes of the recession in December, 2008.<\/p>\n

Recall that the Fed has two mandates: controlling inflation and maximum, sustainable employment. So why did the Fed choose to maintain record low rates? The three main reasons were:<\/p>\n

1. Very low inflation in the US<\/span><\/b> Normally Fed rate hikes occur when inflation is on an upward trajectory. Inflation (ex-food and energy) for August was 1.8%, below its 2.0% target.<\/p>\n

2. US jobs<\/span><\/b> While the unemployment rate has come down to 5.1% from its 10% peak in \u201909, those participating in the labor force are declining as a percentage of the total. This has been on the decline for seven years now.<\/p>\n

3. A fragile global economy<\/span><\/b> There were several mentions of China in the follow up commentary, and slowing global growth overall. Any US rate hike would likely divert investments from overseas markets. It would also further strengthen the US dollar, which in turn would further cut into sales of US products to overseas markets, impacting US multinational companies.<\/p>\n

The decision was not unanimous, however. The dot plot shown below indicates each Fed member\u2019s rate expectations. Of the 17 voting members, 13 selected a higher interest rate range by the end of this year. The plot also shows that Fed members project rates will be even higher in the coming years, to the 3.5% area at the end of 2018 and longer term.<\/p>\n

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Does this mean that the Federal Reserve is currently taking a hands-off policy on the US economy?<\/p>\n

We don\u2019t think so. What most people don\u2019t realize is that the Fed is equipped with other tools besides changes to the Fed Funds rate when it seeks to heat up or slow down our economy. Some of these tools are:\n<\/p>\n