STEVE INSKEEP, HOST:
The Federal Reserve has not raised interest rates for nine years - nine years - the years of the financial crisis and the aftermath when the Fed dropped rates again and again and held them down hoping to boost the economy. Now this week, that could change. Today in Washington, Fed officials begin a two-day meeting where they decide whether it is finally time to raise rates again. If the Fed should change its historic rates near zero, the rates you pay for a car loan or a mortgage could tick up, too. NPR's John Ydstie reports.
JOHN YDSTIE, BYLINE: Whether the Fed raises rates will be decided by a 10-member group called the Federal Open Market Committee. Five members are Fed governors who are presidential appointees based in Washington. The other five are presidents of Federal Reserve district banks based around the country. Princeton economics professor Alan Blinder is a former vice chairman of the Fed.
ALAN BLINDER: They will basically start in what's called the economy round, where everyone around the table, in his or her turn, will talk about how he or she sees the economy.
YDSTIE: They'll discuss things like the level of consumer spending and job growth and whether they're speeding up or slowing down, also the level of inflation, which is lower than the Fed thinks is ideal for growth. Jeffrey Lacker will be at the table. He's the president of the Richmond Fed, and he's made no secret about what he thinks.
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JEFFREY LACKER: Earlier this year, I said publicly that I thought the case for raising rates was strong, and I still think that's true.
YDSTIE: That's Lacker in a speech he gave about a week and a half ago, titled The Case Against Further Delay. But Lacker said he could be influenced by the deliberations of the committee.
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LACKER: I should emphasize that I won't make a final decision on that question until I've had the benefit of discussions with my colleagues at the upcoming meeting and until I've had a chance to review any additional data we receive between now and then.
YDSTIE: The data show the U.S. economy seems to be steadily improving, but there's concern that a slowdown in China could undermine U.S. and global growth. That sparked volatility in the financial markets and put further downward pressure on inflation. Alan Blinder says that's made whether to raise rates a very close call. That means a lot rests on the shoulders of Fed Chair Janet Yellen. Yellen has said she believes the Fed will begin raising rates this year, but Yellen hasn't spoken in public for the past two months, so her current thinking is a bit of a mystery. Where she comes down will likely tip the balance, says Blinder.
BLINDER: Everybody sees this as a close call - or almost everybody sees this as a close call. If it's a very close call and you're sort of 55, 45 on the opposite side of the chair, you're probably not going to dissent against her.
YDSTIE: If Yellen tilts toward raising rates and the committee follows, the impact will be immediate, says Blinder. When the committee releases its statement at 2 p.m. Washington time Thursday, the traders in the financial market will do the work.
BLINDER: It's like a videogame 'cause you got all these young traders sitting at terminals, and it's who can hit the key first. If you get in two milliseconds before the other guy, you can make money on the trade.
YDSTIE: And those trades will drive rates higher. Now, there was a time before the Fed issued statements that the Fed would announce a rate hike by having its trading desk in New York sell governments securities in the financial markets to push up rates and the market would fall in line. Blinder says the Fed could still do that, but it's not usually necessary. John Ydstie, NPR News, Washington.
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