Fed meeting: Committee says inflation not yet a concern, rates unchanged

Fed meeting: No rate hike this month

The results of the latest Fed meeting are in. The central bank did not raise its target for short-term interest rates at this month’s meeting, which adjourned on September 20th. In fact, the long-term forecast for the federal funds rate was dropped from 3.0 percent in June to 2.8 percent.

It appears that Federal Open Market Committee (FOMC) members don’t expect the economy to go on a tear anytime soon. That would kill the need for rate increases.

December most likely time for additional increase

If the FOMC raises rates this year, it will most likely be in December.

“Job gains have remained solid in recent months, and the unemployment rate has stayed low,” reads the policy statement. “Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters.”

This is a fairly optimistic view of the economy, and an expanding economy does trigger concerns about inflation. If it picks up any more steam, the FOMC can revise its plans quickly.

However, Fed Chair Janet Yellen has a history of making small changes and providing plenty of warning before doing so.

Fed says hurricane effect not significant

The Fed noted that while hurricane season has definitely put a damper on the economy, the effects are unlikely to be lasting. New York Fed President William Dudley claims the damage may even provide a small boost as rebuilding activity begins.

“Hurricanes Harvey, Irma and Maria have devastated many communities, inflicting severe hardship,” said the Fed in its post-meeting statement.

“Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term.”

Treasury yield increased after meeting

The fact that a potential increase is still being kicked around caused a jump in U.S. Treasury yields to their highest levels in six weeks.

Yields for ten-year Treasuries spiked by five basis points (5/100ths of one percent) immediately following the Fed meeting. That’s likely to be felt in mortgage markets today, as the lenders who priced low this morning revise their offers this afternoon.

Others simply opened with higher rates while waiting to see how the Fed meeting went. This blip may be temporary, and rates could very well settle down in the next few days as investors get over the fact that nothing really happened.

Inflation still below Fed target

Inflation may increase temporarily due to higher gasoline prices (in part due to hurricane destruction). However, in the longer term, the committee expects inflation to remain under 2 percent.

That 2 percent is meaningful because that’s the Fed’s targeted rate for economic health.

The central bank also revised its quarterly economic projections for 2017 Gross Domestic Product (GDP) from 2.1 percent to 2.2 percent.

The Fed also lowered its unemployment rate prediction to 4.1 percent in 2018 and 2019, from 4.2 percent in September. That is nice for the economy but slightly inflationary for interest rates.

Household spending continues to increase at a moderate pace. The notes also indicated that business spending has “picked up in recent quarters.” That’s also encouraging for the economy, and could lead to higher rates down the road.

What are today’s mortgage rates?

Mortgage rates are still low, and the Fed seems committed to small, incremental increases with plenty of warning to investors and borrowers. However, mortgage rates depend on many factors not related to decisions by the Fed.

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