By Adam Schalke
After seven years of sluggish but consistent economic growth following the Great Recession, and with almost seven years of lenient monetary policy, the Federal Reserve is looking to raise interest rates later this month.
The Federal Reserve, America’s central banking system, will announce as soon as Thursday, September 17 whether or not interest rates in the United States will raise from its currently low levels to a higher, more normal rate. Almost seven years ago, the Federal Reserve set interest rates to levels near zero in order to spur domestic investment following the fallout of the Great Recession in 2008.
With gross domestic product (GDP) increasing steadily since President Obama took office, the unemployment rate down to its lowest level since before the recession, and evidence of modest wage increases across the country, Janet Yellen, Federal Reserve chair, suggested that the Fed may have raised rates in its August 27 meeting and announce the change in September. Yellen claims that the rate hike will be an attempt to safeguard the economy against inflation before it gets a chance to manifest itself in light of the recovery.
This announcement invoked concern among various groups, including legislators and leading experts on economic policy. Robert Reich, former Secretary of Labor under President Clinton, has been perhaps the leading progressive critic of the move. He issued a stern warning last month that a rate hike now would be detrimental to the middle class, arguing that such an interest hike could take away capital from businesses that would otherwise have been used on hiring or raises.
“More jobs and better wages are more important than theoretical worries about accelerating inflation,” Reich stated in a video segment he shared on the Huffington Post.
Reich also made the point that not only businesses, but families could be hurt by the hike, who would have less money around the house because the rate hike would direct more of their dollars to the bank and less to things like groceries, transportation, or costs related to higher education.
An interest rate hike could also be disastrous for foreign markets. Following constant austerity measures in Europe and a slowdown in the Chinese economy, international post-recession growth is on the wayne. If the U.S. economy slides due to decreased consumer spending for reasons related to the interest hike, another global recession could occur as a result.
Currently, no announcement has been made by the Fed; analysts and speculators have said that the likelihood of a rate hike is a “coin-toss”.