Lewis Diuguid

August 26, 2014

Inflation worries may signal Fed action on interest rates

Although the stock market appears to be on sound footing, employment is anemic and the housing industry appears a little wobbly with home prices tapering off and sales for July slumping compared with June.

Interest rates in the U.S. remain unusually low despite rumblings from the Federal Reserve to change that trend.

Although the stock market appears to be on sound footing, employment is anemic and the housing industry appears a little wobbly with home prices tapering off and sales for July slumping compared with June. A big concern is inflation and whether it may trigger the Fed to raise interest rates.

Older people with savings, who had depended on interest earnings to add to their fixed incomes, have been hurt by low interest rates. They certainly would cheer if that changed.

But businesses, governments and people who borrow heavily have benefited from lower interest rates especially in difficult times because of the low cost of loans. What’s Federal Reserve Chair Janet Yellen to do?

Yellen and the Fed have to be cautious about making changes because they don’t want to cause the weak recover of the U.S. economy to stall and tumble back into a recession like the one gripping the European Union.

The best plan at least for now may be for the Fed to do nothing at all.

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