The Outlook: Federal Reserve Bets Rate Rise Can Wait; Officials Say Economic Indicators and Financial Markets Aren't Pointing to Overheating
In a recent Wall Street Journal survey, 30 private economists said they feared the Federal Reserve would wait too long before raising short-term interest rates, while only three said they feared the Fed would move too early.</br></br>Will the Fed fall behind the curve and keep interest rates too low for too long as the economy strengthens? The question looms as officials travel this week to their annual gathering in Jackson Hole, Wyo., where they and the world's leading central bankers discuss economic issues.</br></br>Fed Chairwoman Janet Yellen and academic papers presented at the meeting will focus on labor markets, which are improving rapidly even though U.S. economic growth has been sluggish and erratic. Ms. Yellen seems likely to acknowledge the improving job market, though she has argued for much of the year that slack and headwinds endure after the 2008-09 financial crisis.</br></br>A growing number of economists believe slack in labor markets is diminishing, making the economy prone to inflation and financial markets prone to overshooting with short-term interest rates near zero. The unemployment rate fell to 6.2% in July from 7.3% a year ago, a decline far faster than Fed officials expected.</br></br>"They are making me nervous," Arun Raha, the chief global economist for Cleveland-based Eaton Corp., an industrial manufacturer, said of Fed officials. "Given the strength of the job market, manufacturing and nonresidential construction, it's about time they got rid of their low-rates-for-an-extended-period viewpoint."