After their two-day meeting concluded on May 3, the Federal Reserve announced that they voted to maintain their current target rate.
That means that their rate will still be in the ¾ percent to 1 percent range.
A rate hike seemed unlikely for this past meeting, especially since the Fed had voted to raise their rate at the previous meeting in March.
The Fed has only raised their rate three times in the past decade, and none of them have occurred in back to back meetings.
One reason the Fed opted to maintain their current rate was a slowdown in economic growth. Most indicators showed that the economy was growing at a healthy pace, but GDP growth in the beginning of the year was much lower than anticipated.
Still, there are plenty of positive factors that show that any slowdown in economic growth is likely temporary. The Fed even made a point to mention this in their statement that they released after their meeting.
For example, the Fed stated that “household spending rose only modestly, but the fundamentals underpinning the continued growth of consumption remained solid.”
In other words, while the economy didn’t grow much, there is still plenty going on that can push the economy back on track.
One strong area of the economy is the housing market. The housing market has been growing at a quick pace over the past few years, and it should continue to grow.
With the Fed keeping their rate the same, this could also keep mortgage rates low. Today’s low rates are helping home buyers purchase homes at a more affordable price, and that will keep the housing market growing.
Why The Fed Maintained Their Rate
The Federal Open Market Committee (FOMC) is in charge of conducting monetary policy in the United States. They meet roughly every six weeks, and their most recent meeting was scheduled for May 2-3.
One tool the Fed uses to conduct monetary policy is the federal funds rate. This is their version of interest rates, and it tends to set interest rates nationwide.
The Fed decides to change their rate for a number of reasons. Recently, they were raising their rate to try and spur a quicker growth in the economy. When the economy is growing, higher rates will help monitor the economy.
Even though the economy didn’t grow by much recently, the Fed is still seeing many positive aspects. There’s more to the economy than growth, and most indicators show that better growth is coming.
For example, unemployment has dropped since the Fed’s previous meeting six weeks ago. The nation is near full employment, and that could lead to rises in wages.
The more money people make, the more they have to spend. This helps the economy grow even faster.
Also, more money makes homes more affordable.
Typically, the economy would have higher rates than it currently does. Home buyers can take advantage of this when they go to apply for a mortgage.
Those looking to purchase a home might want to do it sooner than later. Even though the Fed kept their rate the same, mortgage rates could end up rising in response to their positive outlook on the economy.
More Rate Hikes Coming In The Future
Earlier this year, the Fed announced that they would raise their rate as many as three times in 2017.
Their rate has only risen once so far this year, so that leaves room for up to two more rate hikes. Both of these rate hikes could mark the end of historically-low mortgage rates.
The soonest that the Fed could raise their rate is in June after their next meeting. That meeting concludes on June 14, right in the middle of the summer home buying season.
Summer also sees an above-average amount of economic growth thanks to the good weather and time vacationing. Any huge gains in the economy could directly lead to a rate hike.
Even if the Fed raises their rate, their rate is still relatively low. Americans have been enjoying low rates for a while, but they’ll have to raise at some point in the future.
Home buyers shouldn’t be deterred from getting a mortgage. Just because the economy isn’t growing as quickly as expected doesn’t mean that the economy isn’t strong.
The economy is currently in the middle of a growing phase, and rates will only keep rising as it continues.
Rates change throughout the day, and they’ll continue to change each day until the next Fed meeting. Those looking to take advantage of relatively low rates may want to consider locking in on current rates.