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Economic uncertainty fueled Fed hold on interest rates

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Rebecca Valli

On Wednesday, the Federal Reserve announced that it was leaving interest rates unchanged and cautioned that the bank will be “patient” in future action on interest rates. 

Steven C. Kyle

associate professor, macroeconomics policy expert

Cornell University economist Steven C. Kyle, an expert in macroeconomics and government policy, says that signs of a slowdown in the current economic climate are behind the Fed’s recent change of approach.  

Kyle says: 

“While the economy is still posting healthy growth numbers there are signs of cooling in some interest rate sensitive sectors such as housing and the beginnings of slowdowns in China (e.g. Apple’s negative sales news not long ago was due to slowing sales there) while the EU remains in a state of suspense over what will happen with Brexit.

“This is not to say that a disaster à la 2008-2009 is imminent. Rather, it is simply a reflection of the fact that the economy will continue to fluctuate and with the labor market as tight as it is (3.9 percent unemployment is very low) the upside potential is more limited than it has been in recent years.

“In addition, if there is a psychological component the recent shutdown and the continued uncertainty both in the U.S. and abroad are not helping. It is also becoming increasingly clear that President Trump can be reckless and impulsive when it comes to policy while his economic policy team is nowhere near as confidence-inspiring as it was before the current appointees took over.

“All of this supports a Fed decision to announce a pause in their previous bias toward raising interest rates. It was the right thing to do at this point and whether or not they resume tightening, switch to a regime of easing, or simply do nothing will depend on the data that we get in the coming months. This is entirely as it should be.”

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