The Fed’s Big Announcement: Still Waiting for A Rise

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We were sitting on the edge of our seats Wednesday, waiting to find out what The Fed had to say and, consequently, what kind of news we would be passing along to you. Some were anticipating that the once inevitable rate increase(s) of 2016 would finally become official in September.

They were wrong.

“Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year. Although the unemployment rate is little changed in recent months, job gains have been solid, on average,” reads the introduction to the press release given by The Federal Reserve this afternoon. That promising opening certainly suggests that a rise would come a few paragraphs down, however the Board then lingered on inflation (namely, how it remained below the target range). Finally, the release suggested even the modest gains in metrics weren’t good enough…yet: “Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.”

The Fed has been nothing if not consistent in its treatment of rates during 2016, despite suggestions early in the year that multiple hikes could be coming. Now, at most, one hike during December is the best bet.

“But analysts have suggested the next hike is just a few months down the line several times already this year,” you say. “Why should we take it seriously this time?”

Because disagreement is high. At least three officials on The Fed’s board dissented from the status quo vote, which is the highest total we’ve seen so far. Expect more to jump on that ship in the next few months if no significant changes occur in the economy.

That said, the hike that occurred during December 2015 was the first in nearly a decade. This wait isn’t nearly as suspenseful as we make it out to be.

As it stands, expect rates to slide and stay in the 3.375 percent range that we’ve gotten used to. Although the average rate on a 30-year fixed rate is currently 3.5 percent, this is largely due to conservatism from lenders in the face of Wednesday’s announcement. Now that it’s in the past (and bond markets were improving, even yesterday), you can only expect downward change in weeks to come.