The Federal Reserve on Wednesday held its key Federal Funds Rate steady but suggested rate hikes are in the cards this year.
“In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-1/4 to 1-1/2 percent,” the Fed Open Market Committee statement said. “The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.”
Further down in the statement, however, the Fed continued, “The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”
Lawrence Yun, chief economist for the National Association of Realtors, deciphered the Fed statement. “The Fed will not be on standby for the remainder of the year. A total of three short-term rate hikes are likely. The series of rate hikes will nudge up mortgage rates, though not in one-to-one fashion. Moreover, the Fed’s quantitative un-easing of selling the bonds and mortgage-backed securities into the market (after having purchased in the recent past years) will also force up longer-term interest rates, including mortgage rates. Expect mortgage rates to reach 4.5% by the second half of the year.”
