As predicted, Fed holds interest rate steady

by Ryan Smith16 Mar 2016
As expected, the Federal Reserve left interest rates unchanged after their meeting today, bowing to the realities of a tough start to the year in the nation’s financial markets.

A steady interest rate has both positive and negative implications for mortgage originators, according to Jodie Tanga, director of business development for Pacific Rim Mortgage in Hawaii. On the one hand, a slight rate increase could have helped ease pressure in markets where housing is in short supply.

“It’s a little unique because in Hawaii we have a shortage of inventory. The thought process was that if rates were to go up a smidgen, it would decrease the buying pool a little and slow the tight inventory,” Tanga said. “It would become less of a seller’s market and more buyers could find homes.”

However, Tanga said, rates staying steady is good news for borrowers overall.

“If rates stay low – bottom line, it’s just better. More people can qualify for more,” Tanga said. “They can take advantage of this period to realize their dreams of home ownership. And people who’ve missed the window or been dragging their feet on refinancing can take advantage of that.”

The Fed had kept its benchmark interest rate near zero for nearly a decade before raising it to a range of 0.25% to 0.50% in December. The rate increase signaled the Fed’s confidence in a recovering economy, and Fed officials hinted at the time that they planned four additional rate hikes this year.

But global financial markets got off to a bumpy start this year, according to a Washington Post report. The strength of the dollar weighed down U.S. exports and kept the cost of imports down, while oil prices spiraled to lows not seen in years, keeping inflation at bay. As a result, investors and economists predicted that the Fed would hold off on a rate increase for the time being.

Things may be looking up for the economy. Rising participation in the labor force has kept the job market strong, and oil prices seem to have stabilized, according to the Post. Indeed, there are signs that inflation is finally beginning to inch toward the Fed’s 2% goal.

But some Fed officials have been cautious about early signs of continued recovery.

“It is critical to carefully protect and preserve the progress we have made here at home through prudent adjustments to the policy path,” Fed Gov. Lael Brainard said last week. “Tighter financial conditions and softer inflation expectations may pose risks to the downside for inflation and domestic activity. From a risk-management perspective, this argues for patience as the outlook becomes clearer.”