Economists: Market has tied the Fed’s hands

by Justin da Rosa25 Aug 2015
The Federal Reserve will likely delay hiking its benchmark rate at next month’s meeting, following the market turmoil Monday.

Interest rates will be held near zero at the next week’s policy meeting, according to the majority of economists polled by the National Association for Business Economics.

According to the survey released Monday, 37% of economists polled said the Fed would increase the benchmark rate next month. Some 17% of those polled said the move would come in December, and 17% said it would come next year or later. Nearly a quarter, meanwhile, predict a hike in October.

Monday was a tumultuous day for the American economy, with a number of stock market indexes taking hits and drawing comparisons to Black Monday in 1987.

That poll, however, was released before the market volatility reported throughout the day. So economists may now be even more convinced of a delay in raising the Fed’s benchmark rate.

This week’s market volatility represents a drastic change from earlier this month. Then a Wall Street Journal survey, from mid-August, of 60 economists suggested 82% of those experts believed the central bank would raise its interest rate in September.

If the Fed does decide to delay increasing the rate, originators are likely to continue benefiting from the current record-low rate environment that is helping fuel housing demand. Still conditions, even with more deterioration, aren’t likely to force further cuts to today’s mortgage rates.

“If they delay hiking the rate it won’t have that much of an effect (on rates),” Mark Stanton of Academy Mortgage Corporation told Mortgage Professional America. “You’ll see production go up, though.”

Fed officials said they plan on holding the rate until inflation and jobs data improves.

“In determining how long to maintain this target range, the committee will assess progress – both realized and expected – toward its objectives of maximum employment and 2%,” the Fed said, following the last meeting in July. “This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”

The federal-funds rate has been held near zero since 2008.


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