Last thing Yellen wants is to rush into a rate hike

America’s Federal Reserve will increase its key rate, but that must come later, not sooner

Janet Yellen, the chair of the US Federal Reserve, said last Friday at a gathering of the world’s central bankers that there will be a hike in the key US bench rate — but she hasn’t said when. We can only hope that the rate comes later, and not sooner. The guessing game now changes from the ‘if’ to ‘when’.

What is for sure is that there will be no rise in the key rate before the US presidential elections in November. The last thing Yellen wants to be accused of is entering the political fray. Hiking the rates, even by the bare minimum quarter of a basis point would have an effect on the pockets of American consumers — and voters.

Raising the rate before the key vote in early November would mean monthly credit card bills increase, and Americans who are looking to borrow for new vehicles, or to purchase or upgrade their homes, would be paying more for their loans and home mortgages. Any backlash over those increases would have an impact on the presidential poll, particularly in key states such as Michigan or Illinois — or in similar states where the vehicles that drive America and its economy are built.

Political considerations aside, Yellen needs to take into account the strength of the US dollar. Right now, given the weakness in China’s manufacturing sector, Europe’s system problems with debt and the weakness of the euro, and with the pound sterling at lows not seen in two decades, the US dollar is riding high.

An increase in interest rates will raise the dollar’s value even more, making US exports even more expensive. Yellen has a tough balancing act ahead of her.