The Federal Open Market Committee (FOMC) announced on Wednesday [1] that the federal funds target range will remain at 0.25 to 0.50 percent for at least the next six weeks, ending weeks of speculation.
“Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments,” the FOMC stated in its announcement. “Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”
In the weeks immediately following the FOMC’s previous meeting in July, speculation was heavy that a rate hike would occur in September. When August’s jobs report from the Bureau of Labor Statistics failed to meet expectations as far as job creation (151,000 jobs added, forecasts of a September rate hike cooled considerably. Goldman Sachs economists stated that a common theme [2] in a speech by Fed Governor Lael 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 Fed’s previous rate hike in December, mortgage rates have tumbled and hovered above record lows. From June to mid-September, the average 30-year fixed mortgage rate was below 3.5 percent, according to Freddie Mac. Analysts say the Fed’s rate hike is unlikely to have an immediate effect on mortgage rates.
The FOMC will meet two more times this year: November 1-2 and December 13-14. Wednesday's decision does not mean that a rate hike will not occur in one of those two meetings.
“Despite the temporary hold, the committee sent a strong signal that a rate hike is imminent,” said National Association of Federal Credit Unions Chief Economist Curt Long. “Even after doing so, three members voted against the decision to hold off on a rate hike this month. It seems clear that barring a major setback a rate hike is coming before the end of the year.”