RENEE MONTAGNE, HOST:
Federal Reserve officials had lots of people thinking they were ready to hike interest rates yesterday for the first time in nine years. But as NPR's John Ydstie reports, the Fed decided to wait. The reason - it's worried about troubled economies outside the U.S.
JOHN YDSTIE, BYLINE: The U.S. economy has been one of the few bright spots in the world economy. It's been producing more than 200,000 new jobs every month for several years, and the unemployment rate has fallen to nearly 5 percent. But Fed Chair Janet Yellen says a slowdown in China and other developing countries, which caused the recent stock market plunge in the U.S., raised enough uncertainty that Fed officials decided now wasn't the time to raise rates. [POST-BROADCAST CLARIFICATION: In the audio of this story, we say the U.S. economy has "been producing more than 200,000 new jobs every month for several years." We should have said the U.S. economy has gained an average 200,000 a month over the past several years.]
JANET YELLEN: In light of the developments that we have seen and the impacts on financial markets, we want to take a little bit more time to evaluate the likely impacts on the United States.
YDSTIE: That makes sense, says former Fed Gov. Randall Kroszner.
RANDALL KROSZNER: It's quite possible that U.S. economic activity will be affected by slower world economic growth that could affect exports. There can also be impacts on the exchange rates as well as commodity prices that might affect U.S. inflation.
YDSTIE: In fact, weakness abroad has led to a strengthening dollar, which adds downward pressure on inflation. And Janet Yellen says U.S. inflation is already lower than the Fed thinks is good for economic growth.
YELLEN: We're, after all, way below our inflation target. But an important reason for that is that declines in import prices reflecting the appreciation of the dollar and declines in energy prices are holding down inflation.
YDSTIE: Yellen says those conditions are likely to fade. And she says a majority of Fed policymakers still predict a hike in interest rates by the end of this year. John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.