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Fed Freezes on Rate Hike

ratesEven  though the housing sector has shown further improvement, the Federal Open Market Committee (FOMC) dodged another rate increase this month like many in the industry predicted.

With many economic factors on the path to improvement, many are wondering why the Fed held off this month and when the Committee will actually follow through with one of the anticipated increases.

The FOMC stated in a press release that labor market conditions have improved due to strong job gains, while economic growth has slowed. Household spending is a moderate pace  although real income has increased and consumer sentiment remains elevated.

The committee noted that the housing sector has improved since the beginning of the year. However, on the downside, the committee noted that inflation is still running below the 2 percent long-run objective.

"Against this backdrop, the committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent," the announcement said. "The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation."

The committee said that they expect, with "gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen."

As for future rate increases, the FOMC noted that they will take into account measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments and continue to monitor inflation changes.

"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," the release said. "However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data."

National Association of Federal Credit Unions President and CEO Dan Berger said in response to Fed's decision to leave rates unchanged, "The FOMC’s decision to hold off on a rate hike was widely expected, as recent readings on consumer spending and inflation have been weak."

He continued, "More importantly, uncertainty over the global economy has led policy makers to take a wait-and-see approach. All eyes shift to the next meeting in June, but in the absence of inflationary pressure, there is little urgency for the Fed to resume rate normalization.”

About Author: Xhevrije West

Xhevrije West is a talented writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.
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