Interest Rates Unchanged as Fed Holds on Increase Until Further Economic Improvement
As the Federal Open Market Committee (FOMC) reconvened Wednesday, results from their October 27th and 28th meeting placed yet another hold on the rate hike, leaving the federal funds rate at the current 0 to 1/4 percent target range.
The question on everyone’s mind in the mortgage industry remains: When will the Fed raise rates?
With just one more meeting left this year in December, the Fed has just one last opportunity to raise rates, but many are wary that it will may not occur this year.
A statement from the FOMC showed that household spending and business fixed investment rose at solid rates in recent months, while the housing market continued to improve.
On the downside, government officials saw net exports fall soft, job gains slow, and the unemployment rate held steady. In addition, inflation remains under the Committee’s objective of 2 percent, reflecting falling energy prices and prices of non-energy imports.
With all of this taken into account, the Committee decided to hold off on the rate increase until maximum employment, price stability, and inflation goals are reached.
“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate,” the statement said. “In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress—both realized and expected—toward its objectives of maximum employment and 2 percent inflation.”
The National Association of Federal Credit Unions’ (NAFCU) Chief Economist Curt Long predicted that the rate increase would not occur prior to the official FOMC statement.
“December is a possibility, but one has to ask if the situation has really improved since September,” Long stated. “At this point, the answer would seem to be no, as the risks to inflation continue to be stacked to the downside. Early 2016 seems far more likely.”
International officials and bankers have voiced that they are tired of the hesitancy seen within the Federal Reserve when discussing interest rate increases.
“If you delay something that you were planning to do, then you leave the impression that your compass is different than what you led markets to believe,” Jacob Frenkel, chairman of J.P. Morgan Chase International and former head of the Bank of Israel, said in an interview with the Wall Street Journal.
“Market drama is increased by delay,” he added. Discussion at the Fed’s annual retreat this week consisted of officials and bankers from all over the world urging the Fed to proceed with the rate hike and “get on with it already,” according to an article featured on the Wall Street Journal.
However, earlier this month, Federal Reserve Board Governor Lael Brainard recommended restraint in turning the corner on interest rates–suggesting they need to be left near zero for the time being.
“I view the risks to the economic outlook as tilted to the downside,” she noted. “The downside risks make a strong case for continuing to carefully nurture the U.S. recovery–and argue against prematurely taking away the support that has been so critical to its vitality.”
The minutes from the Federal Open Market Committee (FOMC) September meeting showed that the Fed’s concern mostly lingers around global economic troubles, but they still intend to raise rates before the end of 2015.
“The concerns about global economic growth and turbulence in financial markets led to greater uncertainty among market participants about the likely timing of the start of the normalization of the stance of U.S. monetary policy,” the minutes said. “Based on federal funds futures, the probability of a first increase in the target range for the federal funds rate at the September meeting fell slightly. Many participants judged that the effects of these developments on domestic economic activity were likely to be small, but they acknowledged the risk that they might restrain U.S. economic growth somewhat.”
Even though most officials indicated that economic conditions will allow the hike to happen later this year, “the committee decided that it was prudent to wait for additional information confirming that the economic outlook had not deteriorated.’’