The best-case scenario for the U.S. Federal Reserve’s first interest-rate increase since 2006 is that the economy and markets don’t skip a beat. It’s the worst-case scenario that troubles Fed Chair Janet Yellen, according to Bank of America Corp. economist Michelle Meyer. In that outcome, central bankers increase rates from near zero only to realize that the world’s biggest economy is too fragile to handle even a small tightening of credit.
“If all they were able to do was to go that one time, it would probably have been appropriate for them to wait longer,” she said in a telephone interview Tuesday. “Yes, there’s a desire to not be at zero,” but a fraction of a percentage point higher won’t make much of a difference.
Policy makers — who will announce their latest decision at 2 p.m. in Washington — have held their benchmark rate in a range of zero to 0.25 percentage point since December 2008, and keep pushing out their outlook for a tightening of credit.