Economy Watch: No Daring Moves by the Fed

Hints of weakness in the U.S. economy seem to have influenced the Federal Open Market Committee's decision to not raise interest rates further, but only time will tell.

The Federal Open Market Committee seems to be paying attention to the recent hints of weakness in the economy, since it took no further action on Wednesday, Jan. 27, regarding interest rates. With the economy sending such mixed messages, few expected any such moves in any case. As the committee put it in a statement,”Labor market conditions improved further even as economic growth slowed late last year.”

A range of recent labor market indicators, including strong job gains, points to “some additional decline in underutilization of labor resources,” the FOMC noted, while household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further. “However, net exports have been soft and inventory investment slowed.”

In a moment of relative clarity, the FOMC said that rates were unlikely to rise very fast. “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.” But naturally the Fed made no hard-and-fast promises, saying,”The actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

So commercial real estate (and other) lenders and borrowers can probably expect stable rates for the foreseeable future, or at most a slow rise over the year. The wild card for the U.S. economy remains the fallout from sluggish economies in other parts of the world. “The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook,” the Fed said.