Washington, D.C. — Michael Madowitz, Economist at the Center for American Progress, released the following statement today after the Federal Reserve announced its intent to hold off on raising interest rates. The announcement arrives after the Federal Open Market Committee, or FOMC, met yesterday and today in Washington.
The financial markets and U.S. economic data have both amply demonstrated that it would be premature for the Fed to raise rates and slow the economy down—and it is a relief that the FOMC agrees.
There are numerous reasons to worry on the horizon, with the prospect of another unnecessary budget fight and further softening of economies in China and Japan possible, but the main reason not to raise rates is optimism. With the labor market still improving after a record span of job creation and both current and expected inflation at historic lows, the economy is telling us it has more room to grow than many previously thought, even earlier this year.
One can only hope that the Fed will base any pessimism about the ability of the U.S. economy to grow on something more rigorous than a hunch. In the meantime, it is also important for the Fed to begin formulating and communicating a strategy for stimulus should the economy unexpectedly falter—due to premature rate increase or other circumstances. This action would keep us from getting stuck debating how to move past a 0 percent federal funds rate if the economy needs rapid stimulus in the near future, when a gridlocked Congress could force the Fed to act boldly again.
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