The Federal Reserve’s Open Market Committee on Wednesday wrapped up its monthly meeting by holding interest rates steady and vowing to keep on eye on Hurricane-driven inflation.
In it’s statement, the committee said, “Higher prices for gasoline and some other items in the aftermath of the hurricanes will likely boost inflation temporarily; apart from that effect, inflation on a 12-month basis is expected to remain somewhat below 2% in the near term but to stabilize around the Committee’s 2% objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.”
It continued, “The Committee expects that economic conditions will evolve in a manner that will warrant 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.”
The FOMC said it would begin selling off its stash of assets, called unwinding by some and “balance sheet normalization” by the Fed, in October.
In reaction to the statement, Lawrence Yun, chief economist for the National Association of Realtors, said, “As the Federal Reserve indicated today, the huge purchases of mortgage-backed securities and U.S. government bonds could not have continued and will unwind beginning next month. Looking within the statement, the pace of selling looks to be in slow motion. That means that mortgage rates would rise up only modestly over time. Given the pace of unwinding asset purchases with the fewer rounds of anticipated short-term rate hikes over the next two years, it’s expected that mortgage rates should still remain at historically attractive levels. The 30-year fixed rate may rise to slightly above 4% by the end of this year, and may only reach 4.7% by the end of 2018.”