The Federal Reserve Open Market Committee on Wednesday voted to hike its benchmark interest rate by a quarter point to a range of 2% to 2.4%, the highest it has been in more than 10 years.
“Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low,” the FOMC statement said. “Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2%. Indicators of longer-term inflation expectations are little changed, on balance.
The Fed also dropped the word “accomodative” from its description of its rate policy, signaling that rates may now be high enough to be of little stimulative effect.
“On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance,” read the statement.
Based on the statement, it looks like more hikes are on the way. “The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2% objective over the medium term. Risks to the economic outlook appear roughly balanced.”
Stocks fell upon the announcement at 2 p.m. but shortly thereafter began recovering.
Lawrence Yun, chief economist for the National Association of Realtors, analyzed the decision. ““The era of super-low mortgage rates are over and consumers will face higher interest rates over the next two years. Another rate hike by the Fed is almost certain before the year-end, along with further three rounds of increases in 2019. These interest rate increases are occurring for the good reason of improving economy. Therefore, the home sales should hold steady as the opposing forces of higher rates and more jobs neutralize each other. Home price growth will surely slow however as higher interest rates limit the stretching of the homebuyers’ budget.”
