What Can We Expect on Interest Rates for 2015?
While it’s easy to say “it’s anybody’s guess” or “nobody knows the future,” the “Fed” has been giving us forward looking statements on the direction of interest rates since 2008. Before then, it was truly a guessing game as the Fed rarely would give an indication for fear of influencing “The Market.”
The Fed says; “The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to decline further in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate.”
What it means; put simply, the Fed is happy with the way things are going but still on the cautious side of “deflation.” Deflation sound like a good thing, take the recent plummeting of gas prices; it’s good right? More money in your pocket and mine, we may even decide to spend that new found money on something else, or not. Either way, it’s money in our pocket. And, while that is good news in the short term for you and me, it’s bad for the oil industry. You might say “the oil industry, who cares, they are rich already” and that may be all too true but when it costs more to get oil out of the ground in the US than they can sell it for, well, people lose their jobs. These are high paying jobs for the most part and that means “less money” being pumped into the economy. And this is just one example of “deflation,” there are many more that we won’t get into but suffice it to say that the Fed is concerned about these things and as a result, you can expect interest rates to remain low for most if not all of 2015.
In summary, we expect rates to be low for the remainder of the year, they can and will fluctuate throughout the year and as of today’s date we are back down near historical lows on mortgage rates. If you have an opportunity to buy or refinance, now is a great time. We don’t know if rates will go lower, probably not. However, they could easily rise ¼% to ½% from these levels over the coming months
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Here's the Fed's full statement:
Information received since the Federal Open Market Committee met in December suggests that economic activity has been expanding at a solid pace. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; recent declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation have declined substantially in recent months; survey-based measures of longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to decline further in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely.
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. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward 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. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.