Economy Watch: The Verdict on Higher Interest Rates

By Dees Stribling, Contributing Editor

It was quite a buildup to the decision by the Federal Reserve on Thursday about whether to raise interest rates. To hear some tell it, decision was the most important thing for the world economy since Adam Smith published Wealth of Nations. The odds of a raise were about 50-50, with the various strong points and weaknesses of the economy cited. Of course, it has been a long time since the Fed essentially sent interest rates at next to nothing, so it was an important decision for borrowers, including commercial real estate developers and investors and anyone else that accesses the capital markets to do CRE business.

In the end the decision was mañana. (Which we need to say is better thought of as “not today,” rather than “tomorrow.”) In its statement, the Federal Open Market Committee said that the employment has been improving this year: “The labor market continued to improve, with solid job gains and declining unemployment. On balance, labor market indicators show that underutilization of labor resources has diminished since early this year.”

But apparently not quite enough: “To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate.” There was also the matter of inflation, which has been consistently below where the Fed thinks it should be, namely 2 percent.

In short, as FOMC put it: “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.” Most of the committee members voted to put the rate hike, with only Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, voting for an increase right away. That wasn’t a surprise, since he was expected to dissent, but it is the first time in a while that the votes haven’t been unanimous. There’s still a possibility that rates will go up later this year.