Current interest rate likely appropriate for “this year”

The US Federal Reserve is likely to leave interest rates pending throughout 2020 in the absence of an economic shock, Fed Governor Michelle Bowman said Thursday in remarks that included a bullish outlook for a continued recovery in the sector housing.

Bowman told members of the Kansas City Metropolitan Home Builders Association their industry can expect continued low interest rates to rise, a critical factor in the demand for new homes.

“Low interest rates will continue to be a major factor underpinning the development of housing activity,” Bowman said. The scale of the Fed current policy is “likely to remain relevant this year as long as incoming information remains fairly stable” with the current outlook for continued low unemployment and continued modest economic growth.

“The U.S. economy is currently in a good place,” and the expectation is that it will remain there, Bowman said.

The Fed cut interest rates three times last year, setting the target policy level at a range between 1.5% and 1.75%. This was largely done to protect against a possible sharp decline as global growth slowdown and an intensifying U.S.-China trade war raised risks to the U.S. economy.

Those risks have eased somewhat – the United States and China signed an initial trade agreement this week. But policymakers have said they plan to leave rates unchanged after assessing the economy’s response to those cuts, and unless there is a “material reassessment” of the US economic outlook.

How deep a reassessment or how long that assessment may take has not been determined.

Some regional bank presidents have suggested that rates will not change at all in 2020, and Bowman, a member of the Washington-based board of governors, leaned in that direction as well.

Investors expect the Fed to make another interest rate cut this year, but surely after the November presidential election.

Meanwhile, the Fed’s low level of policy has helped lower home mortgage rates from 30 years from nearly 5% in fall 2018 to about 3.6% now.

Coupled with an increase in family formation amid strong employment, and renewed interest in new families to buy, Bowman said the housing industry should boost national economic growth after years left in the wake of the 2007-2009 financial crisis. .

Fixed-income housing investment added to GDP growth in the third quarter of 2019 for the first time since the end of 2017.

“We have seen an increase in the level at which young adults are moving out of their family homes and forming their own families,” Bowman said. “The latest housing data has been encouraging: Both new and existing housing sales increased strongly in the second half of 2019 … Permits for new housing construction, which had been slow in early last year, recently moved to high levels for this expansion.

“Overall, national indicators suggest a positive growth outlook for the housing sector over the next few quarters.”/ Investing.com

 

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