Finance scholar comments on the Federal Reserve holding interest rates steady
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Dr. Jitka Hilliard of Auburn University’s Harbert College of Business comments on the Federal Reserve’s decision to hold interest rates steady. Hilliard is an associate professor of finance in Auburn’s Harbert College of Business and has had research published in the Journal of Banking and Finance, Quantitative Finance, The Journal of Investment Management and The Financial Review.
What does this indicate about the economy?
Hilliard: As you know, the Federal Reserve, to some extent surprisingly, announced not to continue with its plan to gradually increase interest rates at this point. When affecting interest rates, the Fed balances benefits of economic growth that favors low interest rates against a threat of inflation. The inflation remains around 2 percent, a very good number. The economy slowed down in the recent quarter, indicated especially by a weaker housing market and durable goods orders. On the other hand, the job market seems to be strong. In fact, the labor department announced last week that U.S. employers added 300,000 jobs in January. However, it would be too optimistic to assume that the U.S. economy will be able to sustain its high growth over 3 percent that we saw in 2018. In context of expected global economy slowdown, the Fed probably acted on a cautious side.
What kind of stock market reaction do you expect?
Hilliard: Low interest rates are always good news for the stock market. Low rates mean a cheap source of capital, so companies can cheaply finance their projects and grow. Because bonds pay low interest rates, many investors may choose to go more toward equity which also pushes prices higher.
Do you expect a rate increase in the coming months?
Hilliard: The Fed did not abandon its incentives to gradually increase interest rates in the future. It will depend on the economic data that we will see in coming months.
Interviews:
To arrange an interview with Hilliard, please contact Preston Sparks, Auburn University director of communications, at 334-844-9999 or preston.sparks@auburn.edu.
Auburn is a member of the LTN television network (“Auburn University Studio at Tichenor Hall”) and can arrange the studio for LTN members unable to travel to Auburn. More information is available on Auburn’s LTN webpage.
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