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When 2015 began policymakers figured that the U.S. Federal Reserve would raise interest rates. Optimism about the strength of the U.S. economy, as well as projections that inflation would soon meet the Federal Reserve’s preferable mark of 2%, lent credence to these predictions. However, lower than expected growth during the first quarter, coupled with disappointing unemployment data and stubborn inflation statistics have caused some observers to change their predictions of a rate increase. Instead of expecting an increase in 2015, some are now saying that a change in monetary policy will not occur until next year. The minutes of the Federal Reserve’s meeting last month show that it is divided about what to do and this uncertainty means that extempers could face questions over the next three months about when the Federal Reserve will act, and if it should raise interest rates before the end of the year.
This topic brief will give an overview for how monetary policy works, discuss why “hawks” within the Federal Reserve wish to raise interest rates, and then analyze why “doves” within the Federal Reserve wish to maintain interest rates at their near-zero level for the near future.
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