At its September meeting yesterday, the Federal Reserve Board noted one way and voted another. The Fed voted 7-3 to leave its Federal Funds interest rate untouched at its low level, suggesting the commercial real estate national markets will not have to worry about escalating cost of capital — at least for now.
In a press release following the vote, the Fed cited a strengthening labor market plus a picking up of economic activity in the second half of the year as a justification for the vote. Inflation fears were addressed by noting the level remains under the Board’s long-run goal of 2%.
The Federal Funds Rate’s target was allowed to stand between 1/4 and 1/2 of 1%, despite the “case for a [rate] increase [strengthening]”:
Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. 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. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only 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.
Prime Rates Primed To Stay Put
The Federal Funds rate is deeply tied to the prime rates each commercial bank offers to its least risky borrowers, prime rates tracking more or less consistently at 3 percentage points above the Federal Funds rate. The next Federal Open Market Committee (FOMC) meeting where the issue of interest rates will be again considered is scheduled for November 2.