The Federal Reserve’s Federal Open Market Committee reduced its key short-term interest rate range one-quarter percent to 1.75 to 2.00 percent during it’s September meeting. While FOMC members had mixed opinions on reducing the benchmark rate range for short term loans, the post-meeting statement suggested that reducing the federal funds rate was a hedge against inflation. The federal funds rate impacts short-term consumer loan rates for autos and adjustable rate mortgages, but does not impact fixed mortgage rates. FOMC monetary policy decisions are governed by the Federal Reserve’s dual mandate of maintaining price stability and an inflation rate of 2.00 percent.
FOMC Members Facing Conflicted Opinions On Rate Cuts
Policymakers consider a variety of influences and news when cutting or raising the federal funds rate range. In addition to its dual mandate, FOMC members consider domestic and global impacts on the economy. Uncertainty over effects of international trade disputes and Great Britain’s looming exit from the European Union balanced strengths in the U.S. economy.
According to the post-meeting statement, seven FOMC members voted in favor of the rate cut to 1.75 to 2.00 percent; one member voted for a rate cut to 1.50 to 1.75 percent and two members voted against changing the target federal funds rate range.
Fed Chair: U.S. Economy Expected To Stay Strong
Fed Chair Jerome Powell said in a post-meeting press conference that while U.S. economy expanded for its 11th consecutive year, global economic outlook was less certain particularly in Europe and China. The U.S. economy expanded 2.50 percent in the first half of 2019; factors driving growth included rising consumer confidence, wages and strong job markets. Business investment and exports were lower due to uncertainties over trade. Job growth slowed, but this was expected based on 2018’s fast pace of job growth. Work force participation grew; the Fed expects the national unemployment rate to remain below four percent for the next few years.
Chair Powell said that maintaining strong economic conditions was particularly important for low to middle income consumers left behind during the Great Recession. While current inflation stands at 1.40 percent, the Fed projects that it will grow to 1.90 percent in 2020 and achieve the target goal of 2.00 percent in 2021. Chair Powell said that inflation pressures are muted and at the lower end of historical ranges.
Chair Powell echoed the FOMC statement in saying that the Fed would continue to monitor economic developments abroad and would adjust monetary policy according to economic developments prompted by trade disputes and emerging economic developments.
About the Author:Babak Moghaddam graduated from University of Southern California in 1985. He entered the mortgage industry as a compliance auditor at the Bank of New York in 1986 and completed his masters in Business Administration two years later. After seventeen years in the traditional mortgage banking world Babak finally transformed this vision into his own practice in 2002 when he formed Charter Pacific Lending Corp, a mortgage company that has provided over $900 Million in residential real estate loans throughout Southern California. Babak and his team do things a little differently than other mortgage providers. They work as financial advisors, because they have come to realize that a mortgage is a very powerful financial tool. And just like any other financial tool, it should be managed as part of the overall financial management plan to reach every home owner’s long and short-term financial goals much faster. You can contact Babak for a free consultation and strategy session at (800) 322-1217 X103.