The Federal Reserve kept the key interest rate unchanged on Wednesday, but left open the possibility of a rise in the rate in December. The Fed will start thinning out trillions from its balance sheet in October as it works to wind down its bond-buying program.
“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability,” according to a statement by the Fed. “In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1.25 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.”
Hurricanes Harvey, Irma and Maria, the Fed noted, could have an effect on the economy, particularly inflation, in the short-term.
“Hurricanes Harvey, Irma, and Maria have devastated many communities, inflicting severe hardship,” according to the statement. “Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term. Consequently, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Higher prices for gasoline and some other items in the aftermath of the hurricanes will likely boost inflation temporarily.”
A Goldilocks jobs report for August potentially played a role in the Fed’s decision.
“It has been a humdrum economy so far this year, seesawing between good to tolerable, yet certainly not great,” said Lawrence Yun, chief economist of the National Association of REALTORS® (NAR), in a statement on the August jobs report. “Nonetheless, the 12-month job gains total still tops 2 million, and that will likely grow household formation and home-buying demand. The job figures…assures that interest rates will remain low for a longer period.”
Analysts all but surely expect the Fed will move on the key rate in December.
“The Fed will….wait until December for additional data, especially on inflation, before raising the fed funds rate for the third time this year,” said Doug Duncan, chief economist at Fannie Mae, in its Economic and Housing Outlook this summer. Fannie Mae’s Economic & Strategic Research (ESR) Group forecasts the economy to grow 2.2 percent this year.
Danielle Hale, chief economist for realtor.com®, commented, “The Fed’s decision…to begin scaling back purchases of mortgage-backed securities in October is likely to lead to an uptick in mortgage rates and may mean more volatility in rates. Home shoppers will want to adapt by considering their budget in light of current mortgage rates and thinking ahead about adjustments should mortgage rates move up suddenly. While a big sudden move in mortgage rates is unlikely, given that the Fed decision was widely expected, it’s always good to be prepared.”
The cost of a mortgage, as with other loans, can be impacted by the key rate’s trajectory. The average 30-year, fixed mortgage rate reached a year-low at the beginning of September.
The Fed in December 2016 announced its intent to hike the rate three times in the new year; it has followed through on two thus far: one in March and one in June, each raising the rate one-quarter percentage point.
Stay tuned to RISMedia for more developments.
Suzanne De Vita is RISMedia’s online news editor. Email her your real estate news ideas at firstname.lastname@example.org.
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