If someone tells you they know that mortgage interest rates are going to rise after the Federal Reserve meets next month, they are lying.
Nobody, not even the Fed, knows what interest rates will do.
That’s what you can take from the recently released minutes of the Fed’s last meeting, at which they did not raise the federal funds rate. That’s the rate banks are charged to borrow the money they lend, which impacts the rates that they charge.
The decision to not raise the during the June meeting came with the same commentary all the other recent decisions following December’s decision to raise it from zero. That is the Fed saying “We’re not raising the rate now. But we might in the near future.”
“Or we might not.”
The minutes at the last meeting suggest there’s a split of sentiment on the board, with some voting members ready to raise rates and others saying “whoa, Nelly.” At some point the reins of this monetary manipulation have to come off, but every time you think you know when they might, nope, you’re still left to guess.
Just like everybody else. Including, apparently, the Fed itself.
Honestly, after two months of solid unemployment statistics – whether you think they’re measured accurately is another story for another time – I believed the Fed would put in a hike in September. Even with evidence that the economy did not grow as much in the first half of the year as some expected, I thought an upbeat jobs report would sway the Fed.
But what do I know? What does anyone know?
At some level, you have to believe some of these members are dying to dial that rate up even just a little, if for no other reason than to kind of see what happens. The markets are like a person whose broken legs have had him in a body cast forever, and he stands up and tries to walk for the first time in eight weeks.
That person’s gait might be awkward. The experience might be somewhat painful. He might stumble and have to catch himself.
But that walk eventually has to take place. You can keep a healing economy in the proverbial cast for only so long before it must come off.
Again, some of these people have to be looking at it this way. Which led me to believe low inflation and more jobs would foster a stronger mood for taking that cast off. Seeing the minutes, though, and the divide among the Fed members, I don’t think that sentiment is as strong as I thought it was only a couple of weeks ago.
And maybe it has something to do with the election. This is already maybe the craziest presidential election season I’ve ever been through. Typically, in presidential election years, the economy gets a little wonky as November draws nearer. Markets are volatile. The dollar roller-coasters. It’s quite possible the Fed doesn’t want to throw higher interest rates into the mix in the middle of all that, too.
So my revised guess is that after the election, the Fed will raise the rate at their December meeting.
Unless between now and then unemployment goes back up. Or the economy stops growing altogether. Or housing markets tighten further. Or oil prices somehow surge. Or Hilary becomes president. Or Trump does. Or … well, you get the picture.
Anything could happen between now and September’s meeting let alone December’s, which means I don’t have any idea if interest rates will rise even then.