Peter Schiff, president of Euro Pacific Capital Inc., wrote in an analysis that the Fed statement paints "an unwarranted rosy picture of the prospects for the U.S. economy." He argues that the Fed has already held rates too low for too long, allowing inflationary pressures to build while encouraging too much borrowing.
"The 'oil card' allows the Fed to deflect attention from the real culprits, which are excessive debt and insufficient income growth," he said. "These problems, far from being transitory, are systemic, and will only worsen, especially as interest rates rise."
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Video: Washington Post financial reporter Nell Henderson discusses the Federal Reserve's decision and its potential impact on the markets.
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Transcript: Jared Bernstein, senior economist at the Economic Policy Institute, discussed the Federal Reserve decision on interest rates, unemployment, stocks and oil prices.
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At their previous meeting in late June, Fed officials raised their benchmark rate to 1.25 percent after leaving it at 1 percent for a year, the lowest level since 1958. They had dropped it so low to help the economy recover from the 2001 recession, and to prevent deflation, a dangerous drop in overall prices.
By the June meeting, Fed officials indicated that they believed the economy had strengthened to the point where they should raise rates to more normal levels before inflation became a problem.
In their statement yesterday, they repeated that they would likely raise rates at a "measured" pace, meaning small increases over many months, depending on how the economic recovery proceeds.
Among the factors the Fed will watch closely are businesses' labor costs, which are a key to inflation trends.
Businesses' costs of labor per unit of output rose at a 1.9 percent annual rate in the second quarter, the biggest jump in two years, following a 0.3 percent increase in the first quarter, the Labor Department reported yesterday.
That's in sharp contrast to the decline in unit labor costs that had prevailed through much of the recovery, causing inflation to fall to very low levels.
Hourly compensation, which includes wages, salaries, bonuses and benefits, rose at a 4.9 percent annual rate in the second quarter. But the increase was a much more meager 0.1 percent after adjusting for inflation, the report said.
The ability of businesses to produce more goods and services without adding to their payrolls reflects strong growth in productivity, or output per hour worked.
Productivity at non-farm businesses rose at a seasonally adjusted 2.9 percent annual rate in the second quarter. That is a healthy number in historical terms, but it marks the slowest increase since late 2002, and a drop from 3.7 percent in the first quarter, the Labor Department reported yesterday.
Greenspan has said that eventually productivity growth will slow, and employers will have to hire more workers to keep up with rising demand for goods and services. But he also said it is difficult to predict when that would happen.
