Fed Doesn’t Want to Raise Rates; Chinese Exports Dip in March

The Fed isn’t planning on raising interest rates merely based on unemployment numbers alone. Chinese exports were down for a second straight month in March.

According to the minutes of the most recent Federal Open Market Committee meeting, held in mid-March with its minutes released on Wednesday, the committee said (in central-bank language) that 6.5 percent U.S. unemployment was no magic number. That is, the Fed isn’t planning on raising interest rates merely because unemployment reaches that level, which it could in the not-too-distant future.

In fact, the FOMC wants to get away from such a hard-and-fast threshold. “Most participants preferred replacing the numerical thresholds with a qualitative description of the factors that would influence the committee’s decision to begin raising the federal funds rate,” the FOMC minutes noted; that is, we’ll raise rates when we’re good and ready, and not before.

One participant, however, favored retaining the existing threshold language, lest the markets misunderstand the Fed’s intensions. Another member of the committee wanted to keep numerical benchmarks as interest-rate triggers, but move the goal posts to 5.5 percent for the unemployment rate and 2.25 percent for projected inflation.

And speaking of inflation, the Fed seems to be worried that there isn’t enough of it. “In light of their concerns about the possible persistence of low inflation, members agreed that inflation developments should be monitored carefully,” the minutes said drily, but that points to concern. Lately U.S. inflation has been persistently low, well below the central bank’s target of 2 percent, and such long-term low inflation adds sluggishness to the economy.

The concern over low inflation – or even its evil cousin, deflation – is worldwide. According to the International Monetary Fund this week, inflation in the developed world will come in at 1.5 percent this year, about the same as the 1.4 percent rate in 2013, which is low by historic standards.

Chinese Exports Dip in March 

According to official data released on Wednesday, Chinese exports were down for a second straight month in March, dropping 6.6 percent from a year earlier. It was an unexpectedly large drop, giving the rest of the world another thing to worry about, since the Chinese economy — which depends on exports — hasn’t been its robust self recently. Imports also fell, down 11.3 percent year over year; economists had expected a small rise.

Wall Street seemed pleased with the FOMC minutes, and not so worried about China, with the Dow Jones Industrial Average gaining 181.04 points, or 1.11 percent. The S&P 500 advanced 1.09 percent and the Nasdaq was up 1.72 percent.