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Optimistic Report for Housing from FOMC

marketThere was good news for the housing industry coming from a Federal Open Market Committee (FOMC), which released its meeting minutes on Wednesday.

Taking place on January 31 and February 1 in Washington, D.C., members of the FOMC said their economic forecasts and judgments about monetary policy had not changed much since the December meeting. Against this backdrop, they thought it appropriate to maintain the target range for the federal funds rate at ½ to ¾ percent at this meeting.

Members felt that recent indicators of activity in the housing sector were generally positive. Starts and permits for single-family housing and sales of existing homes rose moderately in the fourth quarter, and real residential investment bounced back after two quarterly declines. A couple of participants commented that supply constraints might be holding back new homebuilding.

Regarding the housing sector, consumer spending posted a moderate increase in the fourth quarter, and participants generally anticipated that further gains in consumer spending would contribute importantly to economic growth in 2017. They expected that, although interest rates had moved higher, household spending would continue to be supported by rising employment and income as well as high levels of household wealth.

The consensus was that the labor market had continued to strengthen and that economic activity had continued to expand at a moderate pace. Job gains had remained solid, and the unemployment rate had stayed near its recent low. Household spending had continued to rise moderately, while business fixed investment had remained soft

However, there were some concerns expressed by participants at the meeting. They emphasized their considerable uncertainty about the prospects for changes in fiscal and other government policies as well as about the timing and magnitude of the net effects of such changes on economic activity. In discussing the risks to the economic outlook, participants continued to view the possibility of more expansionary fiscal policy as having increased the upside risks to their economic forecasts, although some noted that several potential changes in government policies could pose downside risks.

In addition, a few participants noted that prospects for residential investment would also depend on whether household formation picked up and how housing market activity responded to the recent rise in mortgage interest rates.

Regarding the outlook for inflation, some participants continued to be concerned that faster-than-expected economic growth or a substantial undershooting of the longer-run normal unemployment rate posed risks to inflation.

Participants generally agreed that the Committee should continue to closely monitor inflation indicators and global economic and financial developments.

It was discussed whether current assessments of economic conditions and the medium-term outlook warranted altering earlier views of the appropriate path for the target range for the federal funds rate

The recent improvement in consumer sentiment was also viewed as a potentially positive factor in the outlook for spending, although several participants cautioned that an elevated level of sentiment, even if it was sustained, was likely to make only a small contribution to household spending beyond those from income, wealth, and credit conditions.

Finally, the view that gradual increases in the federal funds rate were likely to be appropriate also reflected the assessment that the neutral real rate, defined as the real interest rate that is neither expansionary nor contractionary when the economy is operating at or near its potential, was currently quite low and was likely to rise only slowly over time.

 

 

 

 

 

 

 

 

 

About Author: Sandra Lane

Sandra Lane has extensive experience covering the default servicing industry. She contributed regularly to DS News' predecessor, REO Magazine, from 2004 to 2006, covering local market trends, the effects of macroeconomic shifts on market conditions, and "big-picture" analyses of industry-driving indicators. But her understanding of the mortgage and real estate business extends even beyond those pre-crisis days. She is a former real estate broker and grew up in what she calls "a real estate family." A journalism graduate of the University of North Texas, she has written articles for various newspapers and trade journals, as well as company communications for several major corporations.
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