Federal Reserve: Negative Impacts on Economy and Housing

Despite the Federal Reserve's decision to keep interest rates up, the economy is not free from risks, based on the Federal Reserve’s October meeting minutes, as the Fed cited international trade tensions as a negative influence on U.S. economic conditions.

Notably, in the Fed’s minutes of the Oct. 29-30 policy meeting, officials states that “the stance of policy, after a 25 basis point reduction at this meeting, would be well calibrated to support the outlook of moderate growth “well calibrated to support the outlook for moderate growth,” however, they “judged that the risks to the forecast for real GDP growth were tilted to the downside, with a corresponding skew to the upside for the unemployment rate.”

“International trade tensions and foreign economic developments seemed more likely to move in directions that could have significant negative effects on the U.S. economy than to resolve more favorably than assumed,” the minutes added

Jerome Powell, the Chair of the U.S. Federal Reserve, said earlier this year that negative interest rates aren’t appropriate for an economy continuing to grow, an active labor market, and steady inflation.

“Our economy is in a strong position. We have growth, we have a strong consumer sector, we have inflation ... You tend to see negative rates in the larger economies at times when growth is quite low, and inflation is quite low. That’s just not the case here,” Powell said.

The Fed cut interest rates for the third time in 2019 in October, dropping its benchmark lending rate for Federal funds to 1.5% to 1.75%.

Doug Duncan, Chief Economist with Fannie Mae, said the Fed cited “implications of global developments,” as the rationale for the cut.

Jarred Kessler, CEO of EasyKnock, said that expecting the economy to respond positively to declines in interest rates doesn’t always work out.

“Lowering rates doesn’t always have the economic impact we think, or expect it to have because it disrupts the natural economic ecosystem," Kessler said. "Just look at Japan, it can drive housing growth and a push in the stock market, but other facets of the economy are bound to lose. In the longer term this along with inflation can have a very negative impact."