Federal Reserve Delays Hike Of Low Interest Rates

Federal Reserve Delays Hike Of Low Interest Rates

2:33pm Jun 18, 2015

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Federal Reserve policymakers met. They talked, and once again, they decided the U.S. economy is not quite ready for interest rates to go up. Federal Reserve chair Janet Yellen said today the economy is expanding at a moderate pace and the job gains are picking up. But she needs to see more evidence of that the recent rebound is sustainable. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: Interest rates have been at such super low levels for so long, it's possible to forget exactly why they are so low.


UNIDENTIFIED MAN: You are looking at a live picture of Lehman Brothers' 158-year-old firm, born pre-Industrial Revolution, surviving the Great Depression, two World Wars. The Lehman Brothers will file for bankruptcy this evening under circumstances...

ARNOLD: That was CNBC's coverage on the eve of Lehman's now-infamous collapse in 2008. In the ensuing financial crisis, the Fed lowered its short-term interest rates to around zero, and they've stayed there for nearly seven years. Low rates make it cheaper to borrow. That nudges people to buy houses, and it pushes companies to buy new equipment. And all that can boost the economy. But now the question facing Janet Yellen and the Fed - is the economy finally strong enough to take it off life support?


JANET YELLEN: The decision to raise rates would signify very clearly that the U.S. economy has made great progress in recovering from the trauma of the financial crisis and that we're in a different place.

ARNOLD: But Yellen said today the economy is not quite there yet.


YELLEN: Economic conditions do not yet warrant an increase in the federal funds rate. My colleagues and I would like to see more decisive evidence that a moderate pace of economic growth will be sustained.

ARNOLD: This past long, harsh winter put a dent in the recovery. U.S. economic output actually shrank slightly in the first quarter. Yellen said she thought that was just a short-term transitory slowdown, but she said other indicators still suggest several areas of weakness. She said there still are too many people working part-time when they want to be full-time. Another problem - wages. While there've been some signs of progress here, overall, Americans' wages in this recovery have been stagnant.


YELLEN: Wage growth remains relatively subdued. So although progress clearly has been achieved, room for further improvement remains.

ARNOLD: Randall Kroszner is a University of Chicago economist, and he was a governor of the Federal Reserve System back during the financial crisis.

RANDALL KROSZNER: I was in the Fed when we brought rates down to near-zero in 2008. I don't think any of us thought that rates would stay this low for seven years.

ARNOLD: Kroszner says that's just a very powerful sign of how long and painfully slow an economic recovery this continues to be. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.

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