The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4 percent, the 12th increase in a year.
The Fed committee said that elevated energy prices and hurricane-related disruptions in economic activity have temporarily depressed output and employment.
“However, monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity that will likely be augmented by planned rebuilding in the hurricane-affected areas,” the Fed said in prepared remarks. “The cumulative rise in energy and other costs have the potential to add to inflation pressures; however, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained.”
In today’s statement, the Fed also said, “The committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability. “
The federal funds target rate is what banks charge each other overnight. It has no direct impact on other rates, such as those for mortgages, but it can alter them indirectly.
While there has been a gradual increase in long-term mortgage rates over the past few weeks, they remain historically low. However, the average rate on the 30-year mortgage dipped to 6.06 percent in the Mortgage Bankers Association’s most recent survey, and rates on the 15-year mortgage dropped to 5.57 percent last week.
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