Fed rate hikes may slow amid economic unrest

Economists expect one or two more moves this year

Federal Reserve
The Federal Reserve building in Washington, D.C.

Last updated on July 2nd, 2019 at 09:10 am

The U.S. Federal Reserve last week voted to leave the federal funds target rate unchanged, which has some predicting the central bank will slow its planned schedule for rate hikes this year.

Federal Reserve
The Federal Reserve building in Washington, D.C.

In December, the Fed raised interest rates by a quarter percent—the first time it had raised rates in nine years. Expanding economic activity finally gave the Fed confidence that rates could be increased, after about two years of discussions about the move. But now, economic fluctuations have given the Fed pause.

Lawrence Yun, an economist with the National Association of Realtors, believes rates will be raised again in April and August and then four more times in 2017 and 2018, which the Federal Reserve believes will normalize levels. This will, in turn, affect home mortgage rates, Yun said. Nationally, the average mortgage rate is 3.9 percent. By the end of the year, it will be 4.5 percent and by next year, 5 percent, Yun said.

Yun spoke Monday morning during Marquette University’s fourth annual Wisconsin Real Estate Summit at the Wisconsin Club in Milwaukee.

“The chances of a Fed rate hike has really come down pretty dramatically,” said Jack Ablin, executive vice president and chief investment officer at BMO Private Bank in Chicago. “In fact, there are no hikes in 2016 that are listed more than two-thirds of a chance.”

Ablin attributed the decreased likelihood of hikes to the linkage between crude oil prices and the market, as well as the general maelstrom surrounding growth.

“I think valuation broke away from fund value, probably in the early part of 2014, and latched onto monetary policy from that point forward,” he said. “There was an unwavering belief that if the markets got the sniffles, the central banks would step in and help them out. And for the most part since 2008, they did.”

Now, the Fed is trying to distance itself from the markets. The chance of a rate cut stands at zero, Ablin said, but there may only be one more rate hike this year.

“The Fed is like the mother trying to leave their child at kindergarten by themselves,” he said. “They really just want to cut the apron strings.”

PNC Financial Service Group’s Kurt Rankin, an economist who covers the Midwest, also predicts at least one more increase this year, when the Fed’s Open Market Committee meets in mid-March. But that could change if inflation continues to slow and global financial market turmoil continues, Rankin said in a report last week.

“Growth in the fourth quarter was weak, but the economy will rebound in early 2016,” Rankin said in the report.

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Molly Dill, former BizTimes Milwaukee managing editor.

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