Economy Watch: No Rate Hike Now, but Possible in December
- Sep 22, 2016
The Federal Open Market Committee didn’t surprise anyone on Wednesday when it declined to raise the federal funds rate. Thus the cost of money for real estate deals and other purposes isn’t going up quite yet. But the decision wasn’t unanimous: Esther L. George, Loretta J. Mester, and Eric Rosengren (three of the 10 members) each wanted to raise the federal funds rate to 1/2 to 3/4 percent.
Rodney Ramcharan, director of research at the USC Lusk Center for Real Estate, tells CPE that the Federal Reserve is likely setting the stage for a rate hike by the end of the year. “The dissenting members of the Fed Board are likely concerned about being ahead of the inflation curve as well as financial instability, particularly since prolonged low interest rates might be creating asset pricing bubbles in major markets, such as in the commercial real estate market,” he noted.
“Given the level of dissent at this meeting, I suspect that the board will be more receptive to an interest rate in the next meeting, assuming economic conditions continue to improve at the current pace.” December also has the advantage of being after the election, come what may.
Indeed, the committee said that near-term risks to the economic outlook “appear roughly balanced,” which is more-or-less the same sort of lingo the Fed used in 2015, before hiking rates toward the end of the year. Also, the FOMC explained that “the Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of further progress toward its objectives.” That’s not definitive—nothing usually is from the central bank—but it seems like a rate-hike hint.