COMMENTARY | COLUMNISTS | GEORGE CHAMBERLIN

Fed is fighting raise in short-term rates

It appears the Federal Reserve is doing everything possible, even pulling out a card that has never been played before, to keep from raising short-term interest rates.

After two days of meetings, the Fed on Thursday announced it will leave the Fed funds rate -- the overnight interest rate charged to member banks -- at zero despite increasing evidence the United States economy has nearly achieved full employment and inflation is nowhere to be found.

However, for the first time ever, the Fed statement brought out a factor it has never used before as an excuse for avoiding a rate hike.

"Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term," the Fed stated Thursday.

While most consumers enjoy low inflation -- attractive borrowing rates and limited price hikes -- the Fed seems to fear the potential of the D word, deflation.

"The Fed has a dual mandate to promote maximum sustainable employment and stable prices," said Jurrien Timmer, director of global macro strategies at Fidelity Investments. "While the employment side of the Fed's mandate to raise rates has been met -- joblessness fell to 5.1 percent in August -- inflation has been below and remains below its target of 2 percent. Falling import and commodity prices and a stronger dollar have put more downward pressure on inflation. In the end, the fears about these deflationary forces won out."

Chair Janet Yellen, in comments after the Fed statement was released, said there is still a chance a rate adjustment could come as early as next month or at the December meeting. Some analysts say there's a good chance the hike won't occur until 2016.

There are a tremendous number of moving pieces in the Fed decision to leave rates unchanged. Not only do investors and consumers want to know when the first hike will come, they also want to get a sense of what happens after that.

"Despite the attention given to the timing of when the Fed will raise rates, we believe the more important questions are how quickly rates will go up and where they will stop," according to Vanguard Investments. "Whether liftoff happens in the coming months or even next year, we expect the Fed to make more measured, staggered rate increases than in previous tightening cycle, especially given the fragility in global economic growth."

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