Fed Leaves Benchmark Interest Rate Unchanged

Date: February 01, 2016

Decision Casts Doubt On Previously-Expected March Rate Hike

Last week the Federal Reserve left its benchmark interest rate unchanged, leading to speculation on whether or not the central bank will proceed with a rate hike in March, as has been expected. The New York Times reported that last week’s decision to leave rates unchanged was expected and that the Fed said it “still expected to increase that rate ‘gradually’ in the coming months as economic conditions improve.” However, the statement “suggested that the Fed’s confidence in the economic outlook has deteriorated since December.” USA Today added that while the Fed “said it’s closely monitoring global economic and market turmoil,” it “gave no signal that it’s retreating yet from plans to raise rates gradually this year.” USA Today said the Fed appears to be “taking a wait-and-see approach to the recent troubles, but isn’t yet backtracking from plans to gradually boost interest rates.” Bloomberg News reported the Fed “opened the door to a change in their outlook for the economy this year, and possibly a slower pace of interest-rate hikes that would make a move in March less likely.” According to Bloomberg, the meeting was a “tricky communications challenge for the Federal Open Market Committee,” as “central bankers had to acknowledge dimming expectations of global growth that have resulted in a sharp stock market sell-off while avoiding a definitive directional hint on the timing of the next rate increase.”

What This Means For Small Businesses

The Federal Reserve’s lack of action in post-recession years has been a source of dismay to businesses large and small. As NFIB Chief Economist William Dunkelberg said in the latest Small Business Economic Trends report, the Fed’s policy of “trying to attain 2 percent inflation when inflation by this measure has averaged less than that for decades” appears to be “a mindless exercise. The goal was set some time ago and the reasons were vague and unclear. But now, the Fed marches toward it regardless, reluctantly leaving zero rates behind. If inflation does hit the 2 percent target, how will policy change?” Small businesses await the March meeting with lingering levels of uncertainty about overall US economic conditions.

Additional Reading

The Wall Street Journal also covered the story.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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