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Tags: Feldstein | Fed | increase | rates

Feldstein: Fed Indicates 'Significant Increase' in Rates for 2015

By    |   Thursday, 18 September 2014 01:39 PM

The Federal Reserve may have been cautious in its policy statement Wednesday about committing itself to any date for raising interest rates, but it will clearly act next year, says Harvard economist Martin Feldstein.

"They are communicating to the market that 2015 is going to see a significant increase in short rates. I suspect longer rates as well," he tells CNBC.

"So while they haven't put a date on when they are going to start, it seems to me to be a little less important than the fact they are telling us by the end of [2015] the fed funds rate will probably be in the 1.25 to 1.50 percent range."

Editor’s Note:
Dow Predicted Will Hit 60,000 — Buy These 4 Stocks Now


Feldstein was referring to the forecasts of Fed policymakers, which were published separately from the policy statement. The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008.

The central bank's low-rate policy is brewing trouble in asset markets, Feldstein argues.

"Very low rates have caused all kinds of players in the market to reach for yield, and reaching for yield means taking risks," he notes. "That could come home and bite investors when interest rates begin to rise."

Not everyone thinks the Fed will boost rates next year. Vincent Reinhart, chief economist at Morgan Stanley and a former top official at the Fed, writes in a commentary obtained by MarketWatch that he doesn't expect a rate hike until the beginning of 2016.

Once the central bank signals that a rate rise is imminent, financial markets will freak out, and that will cause the Fed to hold back, Reinhart says.

Editor’s Note: Dow Predicted Will Hit 60,000 — Buy These 4 Stocks Now

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Finance
The Federal Reserve may have been cautious in its policy statement Wednesday about committing itself to any date for raising interest rates, but it will clearly act next year, says Harvard economist Martin Feldstein.
Feldstein, Fed, increase, rates
296
2014-39-18
Thursday, 18 September 2014 01:39 PM
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