Many had expected that 2015 would finally be the year when the Federal Reserve drew a line under the Global Financial Crisis and started on the long path to move interest rates back towards their long-term average value. Those expecting an announcement at the October meeting have again been disappointed. The average interest rate set by the Federal Reserve in the period from 1971 to 2015 (including, therefore the current low) is a whopping 5.93%, when seen from today’s perspective. It has been at a record low of 0.25% since December 2008 and hit the dizzying heights of 20% in March 1980. These rates reflect what interest the Federal Reserve will pay for funds on deposit with it; the cost of loans and mortgages to businesses and consumers is, naturally, much higher.
The Federal Reserve’s Open Markets Committee (FOMC) will meet again in December and could take rates above their current historic lows. Currently, short term interest rates are in the range from 0 to 0.25%.
Little has changed from the last meeting when a tailing off of the job creation pace, weak consumer spending, low inflation and an eye on weak global demand led to a decision to postpone a rise. Again, the FOMC has left the door open to a 2015 rise, noting that the US economy continues to expand at a modest rate. A statement released after the meeting confirmed that “The Committee continues to see the risks to the outlook for economic activity and the labour market as nearly balanced, but is monitoring global economic and financial developments”. The fact that previously issued statements of caution about the risks that global financial and economic developments posed to the US economy have been dropped from the current statement has been seen as suggestive of a December rate rise by some analysts. The Fed noted that whilst the pace of job creation had stuttered, that there had been improvements in both household spending and on the investment front. The Q3 growth figures will be scrutinised closely for signs as to which way the Fed will jump at its final regular meeting for 2015.