The Fed, underemployment, and the US Election

Global Business

The U.S. Federal Reserve is keeping rates unchanged, but maybe not for long. Fed officials have recently signaled that there’s a strong likelihood of a move higher next month after the election.

But the tightening U.S. election race is also introducing an element of uncertainty into that equation.

CCTV America’s Daniel Ryntjes reports. 
Follow Daniel Ryntjes on Twitter @danielryntjes

The major lever used by the Federal Reserve to control the cost of U.S. borrowing, is the federal funds rate. It’s been held at historically low levels since late 2008 and it’s only been raised once since then.

There was no regularly scheduled press conference following this meeting, which ended with the decision to hold the target rate at between a quarter and a half percent.

But in statement the Federal Open Market Committee said the case for an increase “continued to strengthen.”

The case for a rate increase has been strengthened by the performance of the economy, growing 2.9 percent in the last quarter and the official unemployment rate is at 5 percent.

But in recent days U.S. financial markets have become more volatile as the presidential race has tightened. It’s created a mood of uncertainty.

The Fed statement makes no mention of these evolving dynamics.

The statement continues to make the case for another hike in the near future, with improving wage growth, stronger consumer spending and higher commodity prices.

The Fed also makes clear that any upward movements in the Federal Funds rates heading into 2017 will again be gradual, and therefore borrowing costs will remain low for some time to come.

Gordon Gray discusses Fed counting of underemployment

For a detailed look at how the Federal Reserve counts underemployment, CCTV America’s Rachelle Akuffo spoke with Gordon Gray, director of Fiscal Policy, American Action Forum.