Beyond the decision to extend its program of asset purchases, what were the most important takeaways from the September FOMC meeting? First and foremost, central bankers don’t yet believe the recovery has found its sea legs. They described the trends that have prevailed under their current interventions as “… consistent with growing underlying strength in the broader economy.” But they also described further rate increases as a threat to that recovery. In the housing market, in particular, they are not ready to wager that the rebound has independent momentum. If it’s taking flight on the market distortions behind cheap money, it may not survive anything but rock-bottom borrowing costs.
Reigning in the Long-Term Forecast
The Fed’s basic argument for accommodation is not in widespread dispute. The economy is growing slowly in the post-crisis era, below its potential rate, and is projected to remain sluggish in the near- and medium-term. The tepid pace of job creation is an even greater source of frustration. Unemployment rates are down from a year ago, but sliding labor participation accounts for too much of that result. Even with subdued inflation, real household incomes are declining.
Read more...Interest Rate Outlook Points to HIgher Yields - Chief Economist Article - GlobeSt.com