December 14, 2015

FOMC expected to raise rates tomorrow

The Federal Open Market Committee begins its two-day meeting today, after which it is expected to announce an increase in the federal funds target rate.

The range has been set at 0 to 0.25 percent since 2008. Observers have been awaiting the rate increase for months, while the committee has repeatedly indicated they were still waiting for inflation to increase and for the labor market to improve. The committee had also expressed unease about economic instability abroad.

In November, the Bureau of Labor Statistics reported an unemployment rate of 5 percent and year-over-year wage growth of 2.5 percent, which caused the federal funds futures market to place the odds of a December rate increase at close to 70 percent. The market has since raised those odds to more than 80 percent following another solid jobs report earlier this month.

Also in November, two Federal Reserve Bank presidents indicated they saw favorable conditions for a rate increase in December. Earlier this month, during her testimony before the Joint Economic Committee, Fed Chair Janet Yellen spoke optimistically about continued improvement in the labor market and the likelihood of inflation reaching the Fed's goal of 2 percent, indicating her interest in a rate increase this month.

NAFCU Chief Economist and Director of Research Curt Long also added: "The committee has indicated that it is looking to make four quarter-point rate increases next year, but that hinges critically on the emergence of inflationary pressures which have so far proven to be elusive."