Despite indications from the Federal Reserve in as early as March that rates would be raised in 2015, the window for the Fed to hike interest rates this year is quickly closing.
The Federal Open Market Committee (“FOMC”) makes decisions over monetary policy, including setting the benchmark interest rates. The FOMC meets eight times a year to make key decisions that increase (or decrease) the money supply, including supplying more credit to banks for lending, setting interest rates, setting banks’ reserves and the discount rate. To date, it has been more than nine years since the FOMC raised interest rates, with the last hike in June 2006. The current benchmark interest rate—which is near zero—has held steady since 2008, when the Fed lowered it to fight the recession.
At its meeting in September, the Fed kept its benchmark interest rate near zero, citing global economic weakness. Following its decision, a recent September jobs report showed that employers in the United States created fewer jobs than expected, which analysts believe could reduce the likelihood of a rate hike this year. Some Fed officials said recently that despite the weak employment report, they still expect to raise interest rates this year, but others have cautioned that if unemployment rises or the economy’s performance remains slow, it is likely that interest rates will not be raised until at least next year.
There are only two FOMC meetings left this year, with the next one in late October and the final meeting in mid-December. Many market participants believe that the final meeting in December could be the most likely date for the Fed to raise rates, although some analysts suggest that the Fed has already waited too long and that raising rates this late in the year will harm investors and impair consumer confidence. In any event, whatever happens with the interest rates will have an impact on everyone, so lenders and borrowers alike should keep a watchful eye on Fed reports for the remainder of 2015.