Recently the Federal Reserve dominated U.S. economic headlines as they did the expected: more “tapering” and no change to interest rate policy. In fact, as JMAC’s brokers know, rates have been pretty much unchanged for a few weeks now, but there has been other information that our brokers and their borrowers should know about. Much of it points to a Q2 GDP rebound. Industrial production has increased, the Conference Board’s Leading Index has increased, and home sales have increased. Inflation heated up a little, but is still in line with the Fed’s targeted levels. Household spending has picked up a little, and the job market is steady – we’ll find out more about that this Thursday.
So it was all about the Fed as the Federal Reserve Open Market Committee announcement regarding the Fed’s interest rate policies and economic forecast were released along with a press conference with Fed Chair Janet Yellen. The Fed will cut its Quantitative Easing (QE) by another $10 billion this month (to $35 billion) purchasing $15 billion in mortgages and $20 billion in Federal debt. The Fed governors lowered their projections for economic growth for 2014 based on the slow first quarter. Frankly, in her press conference Ms. Yellen showed she has learned from her predecessors, Ben Bernanke and Alan Greenspan, speaking without really saying a whole lot.
But borrowers and our brokers should know that the Federal Reserve hinted at a slightly more aggressive pace of interest rate hikes next year as it expressed confidence in the economy. Fed officials however lowered their long-run target interest rate as the economy still struggles with declining labor force participation. The Fed’s two-day meeting ended with indications that the central bank is comfortable with the current U.S. situation where inflation is slowly approaching the 2% target, unemployment is falling and growth is targeted at 3% over the next two years. Based on individual rate hike projections, the median projection for short term rates at the end of 2015 was 1.125% and 2.5% at the end of 2016 – and that is important.