The Federal Reserve is likely to keep interest rates unchanged at its meeting Wednesday – a decision that demonstrates the Fed has a credibility problem, according to Greg McBride, CFA, Bankrate.com's chief financial analyst.
"This is not 2008," McBride said. "Interest rates have no business being at the current level."
McBride said the Fed has used international economic weakness and soft economic data as excuses for not raising rates, even though the economy has reached all the markers the Fed has established.
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Currently, unemployment stands at 5%, core inflation has moved above 2% and the stock market has reached near record highs, McBride pointed out.
Still, the softness in the economy may give the Fed cover – although it shouldn't, McBride said.
The last time the Fed raised rates was in December. Following the Wednesday meeting of the Federal Open Market Committee, the Fed might signal a willingness to raise rates in June or July, according to McBride. However, there is no press conference scheduled following the meeting, so any indication would come in a statement.
Holding off on additional rate hikes will become a longer-term issue, McBride has said in the past. He pointed out that if and when the economy slows in the future, the only proven mechanism for generating economic growth is to cut rates. However, with rates near zero, it leaves the Fed with no trigger to pull for future economic slowing.
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