Despite increased household spending and further improvements in the housing sector, the Federal Open Market Committee on Wednesday voted 9-1 to keep the Fed Funds rate at its current 0% to 0.25% target range. Federal Reserve Bank of Richmond President Jeffrey M. Lacker cast the dissenting vote, recommending a 25-basis point increase.
The Fed cited soft net exports, a slowed pace of job growth and no decrease in the unemployment rate in its decision. Only one FOMC meeting remains this year, scheduled for Dec. 15-16, which caused economists to predict a rate increase won't occur until 2016.
"December is a possibility, but one has to ask if the situation has really improved since September," NAFCU Chief Economist Curt Long said in a release. "At this point, the answer would seem to be no, as the risks to inflation continue to be stacked to the downside. Early 2016 seems far more likely."
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Brian Turner, executive director at the Plano, Texas-based Meridian Alliance, said the Fed's challenge remains how to balance the need for higher short-term rates while consumer spending behavior, typically two-thirds of the nation's GDP, remains a more deer-in-the-headlights profile.
Turner cited a recent Associated Press survey in which 54% of Americans described the nation's economy as poor, and 63% said they think the country is headed in the wrong direction. Less than one third of those polled said they expected the general economic situation to improve in the next year and 44% said they expected their household financial information to stay about the same.
So should the FOMC start to influence short-term rates to rise too soon, too fast, too high, it risks shutting down already fragile consumer spending by increasing consumer financing costs at a very pivotal time," Turner said. "That could instead send the recovery into another downward spiral that could make the 2007-09 recession look like a picnic."
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