Fed meeting: Interest rates remain as-is; hurricane impact negligible

November 1, 2017 - 3 min read

Fed decides as expected

Just as many economists predicted, the Fed has opted to keep interest rates as-is for the time being. Members of the Federal Open Market Committee voted unanimously to keep short-term rates between 1.00 and 1.25 percent at this month’s meeting, which wrapped at 2:00 PM ET this afternoon.

Employment high, inflation low

The decision was a result of what the committee called “balanced” near-term risks to the American economy and a strengthening labor market.

According to the Fed, household spending and fixed business investments have risen as of late — both markers of a burgeoning economy. But rising gas prices (likely spurred by the recent hurricanes) have caused a slight uptick in the overall rate in inflation.

Still, the Fed reported, inflation on items other than food and energy has been soft, and it’s not likely inflation will rise much further.

“On a 12-month basis, both inflation measures have declined this year and are running below 2 percent,” the Fed stated. “Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.”

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Hit by hurricanes?

Despite the uptick in gas prices, the Fed isn’t too worried about what hurricanes Harvey, Irma, Jose or Maria will mean for the economy.

According to its statement, “Hurricane-related disruptions and rebuilding will continue to affect economic activity, employment and inflation 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.”

So far, the hurricanes have caused a drop in what the Fed calls “payroll employment.” Despite this minor downturn, the overall unemployment rate has decreased.

Future rate hikes

Though the Fed didn’t vote to increase interest rates this time around, that doesn’t mean a rate hike isn’t on the horizon.

“The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further,” the Fed reported. “Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.”

According to its statement, the Fed will continue to assess economic conditions, the labor market, inflation indicators and other financial developments to determine when a rise in rates will be necessary.

“The Committee expects that economic conditions will evolve in a manner that will warrant 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. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

Fed hike at the next meeting? Probably

The Fed’s next meeting will take place on Dec. 12 and 13. The group is expected to hike rates by 0.125% at that meeting. That doesn’t necessarily mean that mortgage rates will rise, however. The Fed doesn’t control mortgage rates, but it does influence them.

Because markets assume the Fed will hike in December, mortgage rates already have that increase priced in.

What does 2018 hold for the Fed? Likely a new Chair, for one. Current Fed Chair Janet Yellen’s term will end in February, shortly after the first FOMC meeting in 2018. President Trump has not indicated yet whether he intends to reappoint her.

Today’s mortgage rates

Low inflation typically means low mortgage rates. The Fed has stated that inflation is lower than where they would like it. That means they will actively try to push it up.

Get today’s mortgage rates, which are based on the rock-bottom inflation numbers we are seeing now.

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Aly J. Yale
Authored By: Aly J. Yale
The Mortgage Reports contributor
Aly J. Yale is a mortgage and real estate writer based in Houston who has contributed to Forbes and worked for organizations such as The Dallas Morning News, PBS, NBC, and Radio Disney.