MADISON, Wis. (7/31/15)--Mike Schenk, CUNA vice president of economics and statistics, provided insight to Bankrate on the Federal Open Market Committee’s decision to not raise interest rates during its meeting Wednesday.
The Fed has been keeping its short-term benchmark interest rate, the federal funds rate, near 0% since December 2008. A rate hike would be the first since mid-2006.
Schenk told Bankrate the committee is laying the groundwork for a possible rate hike in September.
“(The economy) is a bit of a mixed bag on balance,” Schenk told Bankrate. He noted other factors support a “modest” rate increase.
Those factors include increases in "core inflation" (minus volatile food and energy costs) as measured by the consumer price index, the falling U.S. unemployment rate and the momentary quiet from Europe as all bolstering the chance that rates will be hiked at the next meeting.
The Fed's statement noted that the labor market has seen "solid" job gains and declining unemployment, household spending has been growing moderately, and the housing market is improving.
"Housing starts are up almost 10% (month to month)," Schenk said. "It's mostly activity in the multifamily market, but permits were up nearly 7.5%, so single-family activity should be picking up as well."
Home prices have increased nearly 6% compared with year-ago prices, according to the Federal Housing Finance Agency's House Price Index. "More importantly, the current level of the index is less than 2% below the peak level," Schenk told Bankrate.