September’s FOMC meeting fell in line with the expectations of most economic experts, with the Committee voting to increase the federal funds rate for the first time at a September Fed meeting since 2004 and 2005. The target range increased to 2.0% to 2.25%, up from its previous range of 1.75% to 2.0%.
This marks the third rate hike of 2018 and Chairman Jerome Powell said on Wednesday that the American economy was experiencing “a particularly bright moment”, signalling that the Fed planned to continue raising rates. He emphasized that the central bank is not trying to choke off economic growth by raising rates however.
While the rate hike itself is newsworthy, Chairman Powell’s press conference offered insights regarding the Committee’s thought processes and U.S. economic indicators. Let’s take a look at everything we learned from this month’s meeting.
Rate Hike is Part of Larger Monetary Policy Plans
The consensus leading up to the FOMC’s September meeting was that a rate hike would likely take place, and everything went as expected. The 0.25% increase was widely predicted as the third of four expected changes in rates this year, following the increases in March and June.
In a press release on Wednesday the Board of Governors stated “In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.” In their most recent economic projections, 12 of the 16 officials who submitted forecasts said they expected the Fed to raise rates again in December.
Expectations From Rosengren
Federal Reserve Bank of Boston President Eric Rosengren said in a speech on Monday that “Federal Reserve policy makers will likely need to move interest rates gradually from a mildly accommodative stance to a mildly restrictive stance.” He went on to say that such a policy “is fully consistent with a forecast of GDP growth above potential that leads to further tightening of labor markets, and inflation mildly overshooting the Federal Reserve’s 2 percent target.”
Bloomberg reports that Rosengren has identified a number of other risks to the continued growth of the U.S. economy, including a strengthening dollar, turmoil in emerging markets, and the fallout from an escalating trade war with China. Still, taking into account the strengthening labor market and lower-than-expected unemployment figures, he warned that economic imbalances could lead to inflationary pressure.
FOMC’s Economic Outlook
While the rate change is the biggest news out of this month’s meeting, the Fed also shed light on some of the key indicators they’re using to evaluate the strengthening economy. In this month’s FOMC statement, the overall economic activity was described as “rising at a strong rate.” At meetings in March and June, it was described as rising at just a “moderate” to “solid” rate. The Committee noted that job gains have been strong and the unemployment rate has remained low. They also noted that household spending and business fixed investment have grown strongly. With overall inflation remaining near 2 percent, the Fed’s economic outlook remains largely unchanged.
Next Steps for Homebuyers
Rate changes coming from the FOMC meetings can certainly influence the course of monetary policy and therefore mortgage rates through the end of the year.
Borrowers who are able to act quickly and take advantage of shifting market conditions have their financial profiles in order and a mortgage plan in place. If you’re considering purchasing a new property in the near future, call one of our mortgage experts to see what’s happening with markets today.
Starting a dialogue and getting prepared in advance can help you move quickly and confidently when the moment is right for your next real estate venture.