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As Fed Holds to Current Target Rate, CUNA's Schenk Provides Insight
Friday, July 31, 2015 6:35 AM

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 percent since December 2008. A rate hike would be the first since mid-2006.

“Growth in household spending has been moderate and the housing sector has shown additional improvement; however, business fixed investment and net exports stayed soft,” the Fed said as it released details of its June meeting. “The labor market continued to improve, with solid job gains and declining unemployment. On balance, a range of labor market indicators suggests that underutilization of labor resources has diminished since early this year. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey‑based measures of longer-term inflation expectations have remained stable.”

The FOMC said it anticipates that “with appropriate accommodation” the economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate.

Meanwhile, 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,” he said.

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.

"Housing starts are up almost 10 percent (month to month)," Schenk said. "It's mostly activity in the multifamily market, but permits were up nearly 7.5 percent, so single-family activity should be picking up as well."

Home prices have increased nearly 6 percent 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 percent below the peak level," Schenk told Bankrate.