Why did the interest rate forecast for 2016 change?

  • Last week, the Federal Reserve reduced the slope of future rate forecasts and emphasized overseas instability over U.S. risk of inflation.
  • The Fed today has some concern that the oil and commodity downward shock of the last two years will reverse, and/or the fall in import prices caused by a strong dollar.
  • The Fed’s decision last week was big in part because every measure of core inflation began to turn up at the end of last year.

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Last week, I issued a “rate warning,” and then the Fed surprised after its meeting — not by standing pat, which everyone expected, but by reducing the whole slope of future rate forecasts and emphasizing overseas instability over U.S. risk of inflation. I heartily concur with the Fed’s decisions. However, here in the housing business, concerns continue. First, for rates to go lower, we’ll need more bad stuff to happen overseas — and we may not get that soon, or bad enough.