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The decision was one of the most anticipated by The Fed recent years. Interest rates set by the Fed have not changed appreciably since 2008.
In its policy statement, the Federal Open Market Committee said an interest-rate increase will come after “some further improvement in the labor market” and when officials are “reasonably confident” inflation will move back to the central bank’s 2 percent annual target.
Fed chairman Janet Yellen said she still anticipates raising interest rates this year, despite recent uncertainty in global economies and financial markets. She said the The Fed still expects moderate GDP growth, continued reduction in slack in the labor market and inflation remaining below target for the next several years.
The interest rate set by the Fed is one consideration that often impacts the purchase of real estate.
“People need to understand that the rate you pay for the average home mortgage is different from the fed funds rate,’’ said Joe Rand, Managing Partner of Better Homes & Gardens Rand Realty. “Home mortgage interest rates are affected more by the general state of the economy and Wall Street's expectation for inflation. Right now, the economy is stable but not surging, so investors are not looking for higher returns on home mortgages. And, of course, the Fed sees that same low-inflation, flat economy environment, so they didn't see a justification for raising rates.”
The Fed did upgrade its outlook for the economy with a projected growth of 2.1 percent, an increase from its previous projection of 1.9 percent. Unemployment has also fallen, down to 5.1 percent after reaching 10 percent in 2009.
“I think it's only a matter of time before rates creep up,’’ Rand said. “In the short term, that will drive some increased activity in the housing market, as buyers rush to get into contract before rates go up too much. In the long-term, rates will only go up if the economy improves, and if the economy improves we are likely to see a healthier housing market that will be able to overcome the dampening effects of higher rates.”
Rand believes a raise in the interest rate by The Fed would be an encouraging sign. “The housing market was basically on life support back in 2008, when the Fed started aggressively cutting rates,’’ Rand said. “The market needed that support. So the Fed finally raising rates again would be a positive sign in that it tells us that the Fed believes that it's time for housing to stand on its own. My mother founded our company in 1981, when rates were at 18 percent. Higher rates don't scare us and they shouldn't scare consumers, because rates will go up only if the economy improves to the point of creating concerns about inflation."
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