After deciding not to raise interest rates this month, the Federal Reserve is hinting at a possible increase to interest rates in September. Fed Chair Janet Yellen, and many of her colleagues, have alluded to improving labor numbers and rising inflation as reasons for the rate hike.
Not everyone is ecstatic about a boost in rates, though. Just last week, the International Monetary Fund (IMF) urged the United States central bank to refrain from raising rates until at least the first half of 2016, citing weak economic data, an uncertain labor market and a stronger dollar.
Now the World Bank has joined the chorus of organizations urging the Fed to delay any rate hike until 2016. The World Bank fears a rate hike could harm the U.S. economic recovery even further and risk hurting emerging markets. Moreover, a rate hike could strengthen the greenback, the World Bank says.
“My concern is that the signals coming out of the U.S. economy have been mixed,” said World Bank Chief Economist Kaushik Basu in a statement to reporters Wednesday in Washington on a media conference call.
At the same time, the World Bank reduced its economic forecast for U.S. growth this year to 2.7 percent, down from 3.2 percent earlier this year. Also, the U.S. economy will grow 2.8 percent next year, down from the previous projection of three percent.
The Fed hasn’t raised interest rates since 2006, and hasn’t touched rates since 2008. The Federal Open Market Committee (FOMC) will meet next week to decide on a rate hike. Economists do think the central bank will raise rates twice this year. By how much remains uncertain. But if they do then it’ll likely be by 25 basis points, which is inconsequential.
Contrarian economists like Peter Schiff do not think the Fed will raise rates, or if they do then it will be very, very minuscule.
“After all, interest rates have stayed near zero for almost seven years,” wrote Schiff. “So another year or two can’t hurt, right? For central bankers, the game is now to push the crash onto the shoulders of the next generation of policymakers.”
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