Despite rumblings that the Federal Open Market Committee (FOMC) would increase interest rates at its monetary policy meeting today, the committee instead reaffirmed its current rates, stating that the 0 to .25 percent rate would remain in place.
According to the FOMC’s statement, this decision was made to “support continued progress toward maximum employment and price stability” and largely factored in energy prices, household spending and incomes, unemployment rates, inflation and other economic influencers.
Despite opting to continue with its current interest rates, the FOMC’s statement did recognize that increases in the future are possible.
“In determining how long to maintain this target range [0 to .25 percent], the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation,” the statement read. “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”
When those increases may come, however, are up in the air.
“When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent,” the FOMC statement read. “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”
Mark Fleming, chief economist at First American, told the MReport he’s not surprised at all about the Fed’s decision.
“The economic data was indicating that rate hikes would likely be pushed out,” he said. “In particular, the lower level of inflation caused by cheap oil and weakened exports caused by a strong dollar contributed to an otherwise unchanging situation in today’s announcement.”
Ataman Ozyildirim, director of business cycles and growth research at The Conference Board, said he wasn’t surprised either.
“It’s not surprising that the Fed did not raise interest rates at this time, nor would it be surprising if they waited until September, “Ozyildirim said. “We found out this morning that real GDP growth rate was a lower than expected 0.2 percent in the first quarter. The U.S. economy is slowing in 2015 compared to the trend growth of 2014 although it appears resilient enough to generate 2 to 2.5 percent growth in the medium term.”
Fleming also said he expects mortgage rates to remain low for the foreseeable future.
“The labor market, in particular, remains about the same right now with some excess capacity and weak wage growth,” Fleming said. “This is good for the housing sector as it seems that mortgages rates will remain low, I believe, through the rest of the home buying season.”
As for future rate hikes, Ozyildirim said it all depends on the economy.
“Downward pressure on profits, falling oil related investment and the strong dollar are holding back the U.S. economy,” Ozyildirim said. “Housing construction is unusually weak, partly a result of very weak household formation, even though interest rates are very low. Some of these are temporary factors, some are not. If most of these conditions are reversed in the next couple of quarters and early signs appear that labor market slack is removed and that inflation expectations start rising significantly, the FED would likely find it easier to start raising rates.”
Fleming said he predicts increased rates might not occur until years down the line.
“It may be as late as 2016, dependent mostly on inflation and labor market conditions over the next six months,” Fleming said.
Read the FOMC’s full statement at FederalReserve.gov.