The Federal Reserve’s Open Market Committee is set to meet later this week in Washington D.C., and many economists expect them to raise interest rates in order to limit inflation and possibly prevent the expansion of an asset bubble; which are often to major causes of recessions. It’s a tightrope to walk, however, as raising the cost of borrowing money too late or too soon can have serious ramifications on the overall economy, as we saw in 2008.
If The Fed decides to raise short-term interest rates it’d likely be by just a small amount designed to propel them back to “normal”, pre-recession levels. A key factor in many predicting this course of action from the Fed was the latest Jobs Report. Unemployment is low, wages are rising, and the overall job market in America looks as good as it has in nearly a decade.
Janet Yellen, the Fed’s current chairman, has publicly hinted at a spike in short-term rates for a few months now, singling out September as a target month. It’s a savvy move by her, as Wall Street investors figure to react less dramatically to a potential rise in rates if they expect it. Opponents of increased rates are arguing that due to the annual inflation rate still being well below 2% -the Fed’s target figure- there’s no need to raise interest rates just yet.
But sooner or later, rates are going to rise, and borrowing money will become costlier. The amount of debt in Europe and the Chinese stock market (which we discussed in a bit more detail here), are a couple of other factors to keep an eye on in the coming weeks. As always, check our blog for updates on mortgage market news.