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An Update From the Federal Reserve and Predictions for Interest Rates in 2019

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Last week, the Federal Reserve met to discuss the current economy and the economic forecast in the coming year. While it is often times difficult the discern the meaning of information coming out of Fed meetings, and learning how it can impact your life, this meeting shed some light on some clear variables that can have an impact on you.

For one, a new strategy regarding interest rates – which have been steadily rising in recent years – could indicate a leveling off, or even a dip in the United State economy.

Following the meeting, the federal funds rate remained the same, and the Fed offered patient language regarding the economy following their meeting.

“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.”

One thing that did that did change compared to their early-year meeting in January was that while there was a very positive view of the economy back then, that outlook has since taken a rhetorical dip.

While in January, phrases like “economic activity has been rising at a solid rate,” and “household spending has continued to grow strongly,” signaled to investors and homeowners that their property would continue to grow in value, the tune this month was somewhat muted.

After March’s meeting, the Fed’s statement signified that “growth of economic activity has slowed from its solid rate in the fourth quarter [of last year].” The Fed added that “recent indicators point to slower growth of household spending fixed investment in the first quarter.”

The policy action to not raise or reduce rates was reportedly a unanimous decision and there is good reason for that. According to the Summary of Economic Projections, or SEP, there appears to be less projected growth compared to last year. GDP numbers are down and unemployment rates are rising. PCE inflation also went down, though the forecast core of PCE inflation did not increase.

To make things more clear, the Fed has now decided that we are in a “pause” period. Basically the Fed wants to push a decision to rise or increase rates until they can better predict what the United States economy is going to look like later in the fiscal year.

“We don’t see data coming in that suggest that we should move in either direction,” the Fed’s statement read. “They suggest that we should remain patient and let the situation clarify itself over time.”

What to Expect for 2019

Savings Accounts

What seems clear now is that the federal funds rate is likely to stand pat for the rest of 2019. On top of that, online savings account rates will likely hold steady as well. The target range of the federal funds rate is between 2.25% and 2.5%.

While rates amongst the more established banks such as JPMorgan Chase and American Express are known to have rates just blow this range, newer banks that are more aggressive tend to have rates that are within the expected range. The most popular internet banks include the likes of PurePoint Financial, Rising Bank, Vio Bank, and Citizens Access.

In all, this means that saving rates will remain consistent compared to past recent years.

Housing Market

When it comes to the housing market, it seems clear that the Fed is hoping to counteract the slowing market by stopping the rise in rates. In the later months of 2018, a dip in housing was noticeable and that could indicate further slowing within both the United States economy and the global economy.

The reason why the increased rates over the last several years could have a slowing impact on the housing market is because increased rates mean more expensive mortgages. When the economy is strong, an increased rate may not get in the way of someone purchasing their starter, vacation, or dream home. When the economy slows at it currently is, however, increased rates can be the difference between younger Americans getting involved in the housing market or deciding to re-up on their lease and continue renting.

Another reason why the housing market could take a step back is because the trend of buy-to-rent homeowners. As explained by Lance Roberts of SeekingAlpha.com:

“As the “Buy-to-Rent” game drives prices of homes higher, it reduces inventory and increases rental rates. This in turn prices out “first-time home buyers” who would become longer-term homeowners, hence the low rates of homeownership rates noted above. The chart below shows the number of homes that are renter-occupied versus the seasonally adjusted homeownership rate.”

CD Interest Rates Forecasts

If the Fed does decide to keep rates steady for all of 2019, you shouldn’t expect any nearterm rates hikes on CDs. In fact, there are signs pointing to a downward pressure on CD rate as opposed to an upward one.

Based on most expert predictions, it seems as though the United States economy is going to continue to dip. If that is true, a trend of downward pressure on CD rates will continue.

While the Fed has stated that rates will not increase or decrease at this time, it is possible that further economic instability leads to pressure to actually pull back and reduce rates going forward.

It seems likely that there will not be much movement on rates going forward, but it will be very easy to predict what direction they will go in the follow years as the current economic situation clarifies.

While it is possible that what the markets are currently experiencing is a simple correction in what has been a historically bull market, it is also possible that the recent dips is a sign of greater turmoil to come.

Hopefully the Fed is able to predict and offset any dramatic downturns so that the U.S. and the world can avoid a recession similar to the one that took place just over a decade ago.

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