Tag: interest rates

The Federal Reserve voted Dec. 14 to raise interest rates a quarter of a percentage point — the first increase in a  year, and only the second since June 2006. With the post-election Dow surging since Donald Trump’s triumph, many wonder what this move will mean for stocks,  future lending rates and the U.S. economy.

An international economist and financial expert at Washington University in St. Louis said that while the move was widely anticipated, he would have liked to see the Fed postpone an increase until President-elect Trump’s inauguration.

Dean Mark Taylor

“Today’s interest rate rise is no real surprise,” said Mark Taylor, dean of Olin Business School and formerly a senior economist at both the International Monetary Fund (IMF) and the Bank of England. “The Fed signaled in September that it wanted to raise rates ‘relatively soon’ but did not want to rock the economic boat just before a contentious election.

“Personally, I would have held fire a little longer, until something more is known about what shape President Trump’s economic policies will take. Combining an interest rate rise with such policy uncertainty is not the best prescription for the economy, in my view.”

Taylor, who became the dean at Olin Dec. 1 after a term as dean at Warwick Business School in England, also is a professor of finance at Washington University. In addition to previously working as a senior economist at the IMF and the Bank of England, Taylor also was a fund manager at BlackRock.

Federal Reserve Bank watchers are still waiting for a sign, a word, a signal on when – or if – interest rates will rise. David Nicklaus writes in his St. Louis Post-Dispatch column that the Fed’s credibility is at stake in the interest rate decision. He interviewed Olin’s Jennifer Dlugosz, assistant professor of finance.

“This is a dance that’s continually going on,” says Jennifer Dlugosz, assistant professor of finance at Washington University’s Olin Business School. “Markets are trying to figure out what the Fed is going to do, and the Fed is always subject to ongoing data.” While repeated delays might hurt the Fed’s credibility, Dlugosz points out that a premature move would be even worse. If the Fed raised rates and then had to cut them a few months later in the face of a deteriorating economy, markets might really come unglued.  Link to article

Professor Dlugosz was an economist at the Board of Governors of the Federal Reserve System in Washington, DC. She holds a Ph.D. in Business Economics from Harvard University and dual bachelors’ degrees in Finance and Systems Engineering from the Wharton School and the School of Engineering and Applied Sciences of the University of Pennsylvania.

It was the financial move the entire world was waiting for: Today, Sept. 17, the Federal Reserve opted to hold short-term interest rates steady near zero, continuing a seven-year status quo.

The federal funds rate — the rate at which banks charge one another for overnight loans — began its decline in September 2007 and bottomed out at zero during the financial crisis in 2008.

While the economy has rebounded, the recent market upheaval in China, and the resulting ripple effects felt globally, raised concerns. The Fed’s decision to hold rates steady buys more time to gauge global markets’ strength, and possible volatility, should a rate hike be put into place in the near future.

“While the economy is running at ‘full employment’ now, some of the recent economic data has been a bit weaker than expected,” said Jennifer Dlugosz, PhD, assistant professor of finance at Olin Business School at Washington University in St. Louis.

“The uptick in financial market volatility and concerns about global growth probably didn’t help either,” she said. “This gives policymakers a chance to try to get a better read on which direction we’re headed in before next month’s meeting.”

Prof. Dlugosz previously served as an economist at the Board of Governors of the Federal Reserve System in Washington, D.C.

Guest blogger: Erika Ebsworth-Goold, WUSTL Newsroom