Fed Pulls Trigger for 1st Time This Year
The Federal Open Market Committee yesterday raised the federal funds rate for the first of what the Mortgage Bankers Association expects is four times this year.
Citing strong labor conditions and emerging inflation, the FOMC raised the federal funds rate to 1-1/2 to 1-3/4 percent. “The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation,” the FOMC said in its statement.
MBA Chief Economist Mike Fratantoni said the FOMC move was widely expected. “Chairman [Jerome] Powell’s first FOMC meeting met market expectations of a 25 basis point hike in the federal funds target rate, a move to continue to remove accommodation from an economy that is at full employment,” he said.
However, Fratantoni noted changes to the Fed’s forecast indicate FOMC members are now anticipating faster economic growth, a stronger job market and potentially a faster pace of hikes this year and next than had previously been communicated. MBA previously predicted the FOMC would raise the federal funds rate four times this year.
“This is warranted given the red hot job market we are experiencing, and the potential for additional tailwinds over the next two years from the tax cuts and additional government spending,” Fratantoni said. “We continue to anticipate that 30-year mortgage rates will get close to 5 percent by the end of the year, pushed up by the Fed’s moves, growing deficits, and the strong economy. Stronger wage growth is likely to overcome this further increase in mortgage rates, thus we’re still forecasting about 5 percent growth in purchase origination volume this year, but refinance volume will be down close to 30 percent from 2017.”
The full FOMC statement appears below:
“Information received since the Federal Open Market Committee met in January indicates that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong in recent months, and the unemployment rate has stayed low. Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings. On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent. Market-based measures of inflation compensation have increased in recent months but remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The economic outlook has strengthened in recent months. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong. Inflation on a 12-month basis is expected to move up in coming months and to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained 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. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant further 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.
Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams.”
