Federal Reserve Confirms It Will Not Raise Interest Rates Before June At The Earliest
Federal Reserve Chairwoman Janet L. Yellen has confirmed that the Federal Reserve will wait at least two meetings before even considering raising interest rates, meaning the earliest month a raise will be considered is June of 2015. Goldman Sachs has remained firm on its prediction that rates will rise this year, but Morgan Stanley predicted last Monday that rates will not rise until 2016.
The Federal Reserve issued its statement on Wednesday, January 28. In that statement, the Federal Reserve “reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate.” In support of that view, the Federal Reserve cited to further improvements in the labor market, reduction in underutilization of labor, moderate rises in household spending, and declines in inflation. The Federal Reserve stated its position is “consistent with its statutory mandate . . . to foster maximum employment and price stability.”
While economic expansion has gained strength, the Fed’s position is likely based on a relatively low increase of 0.8 percent in the Consumer Price Index in 2014, as well as weak wage growth due to a high unemployment rate and therefore large supply of available workers. The Federal Reserve’s stated goal is to keep prices rising at 2% annually, which it has failed to do in two years, and the significant drop in gas prices this year will make that goal increasingly difficult to achieve.
With regard to the real estate market, the Federal Reserve’s position is good news for buyers, who will be able to afford relatively more expensive homes due to the decreased cost of ownership. It is also good news for sellers, as the low interest rates promise to continue to drive prices up in the foreseeable future. As for expert opinions on where interest rates will be at the end of the year, one can only expect that as the end of the year draws closer and interest rates remain low, those opinions will quickly change.
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