Fed more likely to raise rates in September: report

Strong jobs report indicates economy is improving

New York /
Jul.July 19, 2016 11:00 AM

The Federal Reserve is warming up to the idea of raising interest rates in September.

The Fed raised its benchmark federal funds rate in December, but delayed further increases amid weaker-than-expected job reports and uncertainty over Britain’s vote to leave the European Union.  It is still unlikely to raise rates in July, but is increasingly likely to do so in its Sept. 20 meeting, the Wall Street Journal reported.

The U.S. economy added 287,000 jobs in June – a higher figure than previously expected, indicating that the economy is gaining strength. And financial markets have recovered from their post-Brexit shock, removing another reason to keep rates low. As a general rule, the Fed seeks to keep interest rates low when the economy is weak to stimulate investment, and raise them when it is strong to prevent runaway inflation.

The Atlanta Federal Reserve Bank’s president Dennis Lockhart last week said that the Brexit vote “does not seem to have caused direct harm to the country’s economy.”

For the real estate industry, the prospect of a rate hike is a mixed bag. On the one hand, it indicates a healthy economy, which means more demand for office space, retail and housing. On the other hand, higher benchmark rates tend to trickle down to higher mortgage rates and bond yields, which raise the cost of financing and put downward pressure on commercial property prices.

But not everyone on the Fed’s board of governors supports a September rate hike. Federal Reserve Governor Daniel Tarullo recently told the Journal he would rather wait for inflation to pick up before raising rates.

“This is not an economy that is hot,” he said. “This is not the late ’70s.” [WSJ] – Konrad Putzier 


Related Articles

arrow_forward_ios
(iStock/Illustration by Kevin Rebong for The Real Deal)
Investors pile into house-flipping
Investors pile into house-flipping
Housing supply is tighter than ever. (Getty)
Active home listings hit record low
Active home listings hit record low
The mirage of low interest rates
The mirage of low interest rates
The mirage of low interest rates
(iStock)
Older Americans increasingly saddled with housing debt
Older Americans increasingly saddled with housing debt
The number of single-family homes on the market hit historic lows in July, driving prices up (iStock)
US housing supply reaches nearly 40-year low
US housing supply reaches nearly 40-year low
The rates for a 30-year fixed-rate mortgage dropped 7 percentage points for the week ending September 10, reaching 2.86 percent. (iStock)
Mortgage rates notch new low
Mortgage rates notch new low
Since the pandemic started, there is a much smaller pool of lenders willing to offer jumbo loans (iStock)
Mumbo jumbo: Why are mortgage rates all over the place?
Mumbo jumbo: Why are mortgage rates all over the place?
Federal Reserve Chairman Jerome Powell (Getty, iStock)
Real estate stocks outperform broader market but still sink
Real estate stocks outperform broader market but still sink
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...