The Fed might delay, again...

The lower growth forecast along with lower inflation and inflation expectations on passive consumer- spending and housing demand in the expectation of higher interest rate by the Fed itself this year would make it delay rate-hikes. The attempt to reinforce higher inflation and interest rate expectations by the Fed despite low public inflation and inflation expectations on the account of lower oil-prices has reduced consumer-spending, economic activity (low industrial production) and housing demand in the expectation of higher interest rates. Moreover, increased labor-force-participation-rate due to improved economic outlook of the US economy in the past has reduced wage and price-inflation pressures which might also push the Fed to delay rate-hikes. In addition, lower housing demand which is responsible for higher growth rate in the economy, a study shows, would also make the Fed holdup interest rates. Higher inflation and interest rate expectations have reduced consumer and investment spending by increasing savings which is evident in the data. The inflation and inflation expectation have made the people save more for the future which goes against more spending during recovery. Nevertheless, inflation targeting makes people expect higher inflation which might drive them save more, but, if people expect lower prices or deflation they would spend more because they would feel themselves richer when nominal income would also increase due to loose monetary-policy, real wages would increase. We have the optimal-monetary-policy by Milton Friedman which says that such a policy would require sufficiently low nominal interest rate and little deflation in the economy in order to maximize welfare. The studies in this area show that deflation and depression have a weak relationship, moreover, many deflation periods are related with satisfactory growth rate. Therefore, lower inflation or little deflation might help increase spending and real-growth-rate. Likewise, higher inflation and interest rate expectations may reduce spending and increase savings, and reduce the real growth rate. The Fed could try to increase spending by delaying the rate hikes when growth forecast is lower than before.