- theMReport.com - https://themreport.com -

Fed: September Rate Hike is Looking More Likely

While bad economic news at the start of the summer caused many analysts to predict that the Federal Reserve would not raise the federal funds target rate until December, more positive recent news from the economic front has caused forecasters to revise their predictions for the next rate hike to September.

On Tuesday, two Fed presidents (Bill Dudley of the New York Fed [1]and Dennis Lockhart of the Atlanta Fed [2]) addressed the next rate hike in public speeches. Lockhart, speaking at the Rotary Club of Knoxville in Tennessee, noted that economic momentum may appear to be decelerating when examined at face value. At the same time, Lockhart said, “At these low numbers, an apparent decelerating pace of growth would not seem compatible with policymakers' thinking about raising interest rates. Yet I, as one Fed policymaker, am not prepared to rule out at least one rate hike before year's end.”

On the current state of the economy, Lockhart said, “Inflation has not yet accelerated to the Committee's target of a 2 percent run rate, but seems to be moving in a healthy direction. Recent price data hint at the firming of underlying price pressures. I'm reasonably comfortable with a forecast of reaching 2 percent by year-end 2017.”

Lockhart, while president and CEO of the Atlanta Fed, is not a voting member of the Federal Open Market Committee (FOMC), which is the policy making body of the Fed. New York Fed President and CEO Bill Dudley, however, is a voting member of the FOMC. Speaking on Tuesday in Jackson Hole, Wyoming [3], at the annual meeting of top central bankers, Dudley hinted that a September rate hike is likely, saying that “We’re edging closer towards the point in time where it will be appropriate I think to raise interest rates further.”

A rate hike by the Fed in September, or at any time this year, might not have an immediate effect on mortgage interest rates; analysts are predicting the average 30-year fixed-rate mortgage will remain below 4 percent for the remainder of the year. The Fed has the ability to influence mortgage rates, but it does not set them; mortgage rates are determined by the price of mortgage-backed securities on Wall Street.

Mortgage rates have fallen by more than 40 basis points since last December’s historic rate hike by the Fed and at 3.45 percent, the average 30-year FRM [4] is only 14 basis points higher than its all-time low set in late 2012.

The FOMC will have three more policymaking meetings this year—September 20-21, November 1-2, and December 13-14.