Federal Reserve Chooses Not to Raise Interest Rates, Could Lead to More Bankruptcies

Federal Reserve Headquarters in Washington DCThe Federal Reserve recently made the surprising decision not to raise interest rates this month, instead choosing to push back a rate hike until December. This has raised concerns that the economy could continue to struggle, which could lead to a rise in the total number of bankruptcies filed by individuals who are dealing with enormous debts.

The Fed’s non-decision was made at a two-day policy meeting of members of the Federal Open Market Committee, with members on the 10-person committee voting to maintain the current federal funds rate of between 0.25 percent and 0.50 percent.

In a statement, the Fed indicated that there is a need “to wait for further evidence of continued progress” before significantly raising interest rates to between 0.50 percent and 0.75 percent.

The decision not to hike interest rates came as a surprise to many economic experts who forecast a hike after Janet Yellen, the Federal Reserve chairwoman, gave a speech at the central bank’s annual Jackson Hole summit in August. Yellen’s speech signaled an increase in the federal funds rate, with the Fed chair stating that the chances of a hike had “strengthened” in recent months.

Ultimately, however, the Fed opted against raising interest rates in September and pushed back the decision to December. The fact that there were three dissents on the 10-person committee is very significant because this rarely happens – Fed decisions are almost always unanimous. However, it is important to keep in mind that the dissenting members of the committee were not Federal Reserve board members, according to Pedro Da Costa, editorial fellow at the Peterson Institute for International Economics (PIIE).

US Economy Struggles

The lagging US economy was a factor in the expectations of some experts that the Fed would raise interest rates this month. While the economy has largely rebounded from the economic recession, economic growth has come to a standstill. Moreover, the U.S. real estate market continues to struggle, with more people choosing to rent homes and fewer people having the necessary finances to purchase homes.

A hike in the interest rate is considered a double-edged sword: on the one hand, it is a vote of confidence in the US economy; but, on the other hand, a higher interest rate makes it more difficult for consumers to borrow money, buy houses, finance car loans, or pay off credit card debts. According to at least some experts, though, an interest rate hike could be necessary to help the United States avoid another devastating economic recession and help boost the economy so that more people don’t have to file for bankruptcy.

For additional information, read the Yahoo.com article “Fed Holds Rates, Paves the Way for a December Hike.”


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