There’s about a 26% chance of a September rate hike, according to the CME Group’s barometer. Bank of England left interest rates unchanged in their July meeting owing to Brexit vote.
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Here’s how those meetings are likely to affect the rate you pay for a mortgage loan or refinance.
So far this year, the U.S. economy has been pretty obliging to Yellen and co in that it has allowed them to persist with the stated policy of considering global the state of the global economy when making their interest rate decisions. In their post-meeting statement, officials noted that the “pace of improvement in the labor market has slowed” while economic activity more broadly accelerated, and even Kansas City Fed President Esther George voted to stand pat.
“Upside surprises affect the committee less than downside surprises”, says former Fed governor Laurence Meyer, who now runs a Washington policy analysis firm that bears his name. This would be much easier to handle than a negative scenario, because the Fed could simply raise rates to keep inflation in check – an illustration of the policy asymmetry that arises when interest rates are near zero. Trading activities in the credit markets soared at banks despite growing economic uncertainty in the global economy. Alongside a rebound in the June jobs report after an unexpectedly weak number in May, and a steadily-improving housing market, data have shown an increase in confidence and willingness for consumers to spend in the middle part of 2016 as they elected to spend dollars saved at the gas pump rather than stuffing it into savings accounts.
Al Bowman, a mortgage rate analyst in Tampa, Florida, and founder of Mortgage Commentary Services, agrees and offers another consideration.
Meanwhile, Mohamed El-Erian of Allianz SE has called for the Fed to raise rates sooner, emphasizing that long-term collaterals are hurting growth prospects for the U.S. economy and that this contributes to the structural imbalances complicating, among other things, the investment climate. The experts believe that a move in November would be too close to the presidential election; the Fed doesn’t want to create an impression of influencing political events.
“So, that leaves us with a possible rate hike in September or December”, Huettner says. Mostly big institutional investors and hedge funds are betting on the price of something on a future date. Of course, his prediction is barring “anything unexpected”.
The end of May found her saying that a rate hike would “probably” be appropriate in the “coming months”.
The Greenspan put, also known as the Fed put, is the practice of keeping interest rates low to help boost security prices.
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However, for the first time since the Fed hiked rates in December, the chance of a growth acceleration is looking as real as the downside risks that “several” FOMC participants fretted over in June. “Both borrowers and loan officers, I’m sure, are just fine with that”, he says. In addition to the prevailing market turbulence in the global economy, the exit vote increased market volatility. As the Dollars rises, financial conditions tighten, which undermines the Fed’s ability to hike rates.
