FOMC Statement: All Eyes on December

The statement released following the September meeting of the Federal Open Market Committee (FOMC) fell in line with market expectations as the committee chose to keep the federal funds rate unchanged.  The Committee’s assessment of the economy remained positive, leaving a December rate hike very much in play.  In the statement, the Committee continued its upbeat assessment of labor and economic activity.  Information received since July “indicates that the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year.”  In the committee’s view, the brightest spots in the economy seemed to be “job gains [which] have been solid” and household spending, which it described as “growing strongly.” Business fixed investment remains a concern as each of the last two statements have described it as “soft.”  The ongoing healing of the housing sector went unmentioned, while the “near-term risks to the economic outlook appear roughly balanced.”

Inflation remains a central focus as the other prong of the Federal Reserve’s “dual mandate”–maximum employment–has largely been achieved.  The committee kept the exact language of July’s statement when explaining inflation is running at roughly one-half of its two percent mandate.  The low levels are still “reflecting earlier declines in energy prices and in prices of non-energy imports.”  Moving forward, the Committee will continue to closely monitor inflation indicators and global economic and financial developments.”

The minutes from the July meeting showed that participants acknowledged an easing in home lending conditions while others noted positive reports on residential construction activity from business contacts in their Districts.  As NAHB has done for some time, a few business contacts pointed to shortages of lots and skilled labor, rather than low demand, as the main constraints on home building.

By the September FOMC meeting, three additional months of employment data will be in hand, and third quarter GDP and two months of fourth quarter GDP data will be available.  If these continue their upward trend (even at a moderate pace) and business fixed investment firms by December, the Committee could have reason to raise rates for the first time since December 2015.

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