The already low prospect of a rate hike by the Federal Reserve later this month just became even lower following a speech this week by Fed Governor Lael Brainard in Chicago on the “new normal” and what it means for monetary policy.
A so-so number of jobs added in August (151,000) released in early September caused many analysts to pull back their predictions that the Fed would raise rates at the next policymaking meeting on September 21. It would be the first rate hike by the Fed since the historic liftoff in December, which was the first in nine years.
Brainard said in her speech that experiences of economies such as that of Japan “highlight the risk of becoming trapped in a low-growth, low-inflation, low-inflation-expectations environment and suggest that policy should be oriented toward minimizing the risk of the U.S. economy slipping into such a situation.”
One analysis from the CME Fedwatch Tool listed the probability of a Fed rate hike in September at 24 percent prior to Brainard’s speech this week. After the speech, the probability dropped down to 15 percent. Goldman Sachs economists reported a 40 percent probability of a September rate hike prior to Brainard’s speech; after the speech, 24 percent.
The Goldman Sachs economists stated that a common theme in the speech by Brainard and other Fed officials recently was lack of a “clear signal that the Federal Open Market Committee is likely to hike in September,” and that if the Fed were going to take action in September, it “would normally make an effort to nudge the market toward anticipating a hike.”
Since the last Fed rate hike in December, mortgage rates have remained below 4 percent, and for the last three months, they have hovered around the 3.5 percent mark, near the historic low of 3.31 percent set in November 2012. Some analysts, such as Lorraine Woellert of Redfin, predict that even when a rate hike eventually occurs, the effect it will have on mortgage rates will be minimal.
Click here to read Brainard’s full speech.