The Home Buyer's Korner

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May 20th, 2015

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Federal Open Market Committee Minutes for May 2015

Janet Yellen

The Federal Reserve just released the Minutes from its April 28-29 Federal Open Market Committee meeting, which indicated that the Fed is unlikely to raise interest rates in June, which is good news for home buyers.

A few anticipated that the information that would accrue by the time of the June meeting will likely show sufficient improvement in the economic outlook to lead the Committee to judge that its conditions for beginning policy firming will been met. Many participants, however, thought it unlikely that the data available in June will provide sufficient confirmation that the conditions for raising the target range for the federal funds rate will be satisfied, although they generally did not rule out this possibility.

The Federal Open Market Committee (FOMC) meeting minutes largely mimic the statement following the April 29 interest rate decision and highlights a wait-and-see approach. In laying out how it will determine it’s time to raise rates, the Fed has said that it will be “data dependent,” and considerable debate has followed regarding just what this means. The weaker-than-expected economic data we’ve seen so far this year has cast doubt on whether the Fed will be compelled to act any time soon. 

The Federal Open Market Committee (FOMC) meeting minutes showed another unanimous vote to retain the current policy, but revealed signs of a split over the timing for liftoff. While several officials saw scope for a mid-2015 rate hike, other favored a further delay in the normalization cycle, with a few members even preferring to remove the zero-interest rate policy (ZIRP) in 2016.

Despite the mixed outlook, it seems as though the Fed remains on course to normalize monetary policy ahead of its major counterparts as the central bank remains confident in achieving its 2 percent inflation target over the policy horizon. The U.S Dollar strengthened following  the upbeat statement, with EURUSD dipping below the 1.0800 handle to end the day at 1.0779.

Consistent with the Fed’s policy statement released on April 29, the Fed also said the factors holding back the economy during the first quarter are transitory, meaning that they will pass in time. 

The Fed has kept interest rates pegged near zero percent since December 2008 and hasn’t actually raised interest rates since July 2006. A number of times over the last several months.

Currently, most economists on Wall Street expect the Fed to raise rates in September or December, with some saying the Fed won’t raise rates until March 2016; others have argued that the Fed has a window to act right now.  

Despite fears of a slowing recovery, the Fed may continue to relay an optimistic outlook as it looks past the temporary/transitory factors dragging on the real economy, and the central bank may stay on course to normalize monetary policy in 2015 as it anticipates a stronger expansion in the coming months. 

The FOMC may continue to strike an upbeat outlook for the region as Chair Janet Yellen remains confident in achieving the dual mandate, and fresh batch of central bank rhetoric may instill a more bullish outlook for the U.S. Dollar as the committee prepares to remove the zero-interest rate policy (ZIRP).

Nevertheless, the slowdown in growth and inflation may become a growing concern for the central bank, and we may see a growing number of Fed officials favor a further delay in the normalization cycle as committee struggles to achieve its 2 percent target for price growth.

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