Fed Hints at Wait-and-See Approach to 2019 Interest Rates

Filed in Economics by on December 14, 2018 0 Comments

NAHB Chief Economist Robert Dietz recently provided this housing industry overview in the bi-weekly newsletter Eye on the Economy

businessmam holding ladder staring up at higher interest rates-Federal Reserve officials recently signaled a more data-dependent approach to monetary policy in 2019. NAHB continues to forecast an increase of 25 basis points in the federal funds rate before the end of 2018, followed by an additional rate hike in early 2019.

At that time, we anticipate the Fed will pause to examine inflationary pressures and the state of the macroeconomy, before acting one more time later in 2019 to raise the federal funds rate. This is a more dovish path than many others had forecasted earlier this year, when the expectation was for three or four rate increases from the Fed in 2019 alone.

The slight change in tone from the Fed, combined with soft business sentiment data and rising concerns regarding the risk of a recession, have led to a decline for the 10-year Treasury rate, which fell from 3.23% in early November to less than 2.9% this week. This will bring down mortgage interest rates and present more opportunities to prospective home buyers.

While it is clear that some economic momentum has been lost, as reflected in recent stock market declines, household formations remain healthy and the unemployment rate of 3.7% is near a 50-year low.

On the supply-side of the residential construction industry, builders and remodelers continue to add workers. In November, 7,900 jobs were added to the industry, while almost 128,000 have been added over the last year. As of October, there were 292,000 unfilled jobs in the construction sector—the second highest tally for this growth cycle. And the stock of residential construction loans for builders has expanded 8% during the past 12 months.

For more insights on housing economics, visit EyeOnHousing.org.


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