When will the time be ripe to raise rates?
The best-case scenario for Fed policymakers will be unemployment rate falling under 4.9 per cent in a few months and inflation consequently rising close to 2 per cent
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IT IS true that quite a few observers on Wall Street and in Washington had predicted that the US Federal Reserve would raise short-term interest rates after concluding the two-day meeting of the Federal Open Market Committee (FOMC) last week.
After all, it goes without saying that the policymakers in the Fed, whose twin mission is to help ensure that the inflation rate and the unemployment rate remain low, regard the Phillips Curve - which assumes that inflation starts to rise when unemployment begins to fall - as a useful economic model when they make their decisions on interest rates.
So as the unemployment rate has fallen from 10 per cent to 5.1 per cent in recent years, one could have assumed that by applying their favourite macroeconomic theory, the Fed leaders were expecting that upward pressure would mount on wages and that that in turn would ignite inflationary pressure.
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