No Interest Rate Hike Until November

The Federal Reserve is still playing wait and see on interest rates. Nothing the policymakers are saying following the most recent meeting of the Federal Open Market Committee (FOMC) changes our view that interest rate hikes are still months away.

We look for a rate increase no sooner than the Nov. 2-3 FOMC meeting, right after Election Day. Our best guess is that hike will be followed by another quarter-point increase in December. Until then, the fed funds rate, which banks charge each other on overnight loans, will remain near zero, where it has been since December 2008. The rate is an important benchmark for many businesses and households, and the prime rate typically marches in lockstep with it.

Looking at the economy, the FOMC broke little new ground in its post-meeting statement, repeating most of its statement from January. Among the few changes, the Fed cites a labor market that is “stabilizing,” while housing construction is “flat at a depressed level.” The most widely watched language remains the same as the past several months: Referring to interest rates, the FOMC says the fed funds rate will be “exceptionally low…for an extended period.” That language at the FOMC meeting in January brought one dissenting vote, and it brought one dissent this time around, too.

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Idaszak, now retired, worked on The Kiplinger Letter as its economics writer for 21 years. Before joining Kiplinger in 1992, he worked for 15 years with the Chicago Sun-Times, including five years as a columnist and economic correspondent in the Washington, D.C., bureau, covering five international economic summit meetings. He holds bachelor's and master's degrees in journalism from Northwestern University.