Economy Watch: FOMC Minutes Point to Rate Hike in June
- May 19, 2016
Is the Federal Reserve itchy to raise interest rates again? Could be, based on the minutes (released Wednesday) of the latest Federal Open Market Committee meeting, which was on April 26-27. One nugget buried in the long statement by the FOMC: “Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen and inflation making progress toward the Committee’s 2 percent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June.”
If the rate went up from the current federal funds rate of 1/4 to 1/2 percent, that movement would of course affect all kinds of borrowing besides Fed-to-bank, including real estate deals. A slightly higher interest rate would raise the cost of loans, but money would still be pretty cheap for most real estate-oriented borrowers.
The FOMC minutes went on to say that some meeting participants saw “limited costs to maintaining a patient posture” but noted the risks—including potential risks to financial stability—of waiting too long to resume the process of removing policy accommodation, especially given the lags with which monetary policy affects the economy. Markets are used to the distortion caused by low interest rates, in other words, and it only gets worse the longer the Fed waits.
On the whole, the FOMC members seemed optimistic, if the minutes indeed reflect their mood. “[They] agreed that incoming indicators regarding labor market developments continued to be encouraging… Financial market conditions continued to improve, providing support to aggregate demand and suggesting that market participants saw some reduction in downside risks to the outlook. Furthermore, most participants continued to expect that, with labor markets continuing to strengthen, the dollar no longer appreciating and energy prices apparently having bottomed out, inflation would move up to the Committee’s 2 percent objective in the medium run.”