No one was surprised, really. The Federal Reserve again postponed an increase in the federal funds rate on Wednesday. The range remains at 0.25%-to-0.50%, where it has been all year.

Interest rates didn’t move much on the Fed announcement, because the announcement was anticipated. The yield on the 10-year U.S. Treasury note held near a recently established higher range at around 1.65%. Mortgage rates held much the same. Quotes around 3.5% on a 30-year fixed-rated conventional loan have been the norm since early last week.

A few eyebrows were raised because three of the 12 Fed officials voted to raise the fed funds rate.  This is the highest number since Dec. 2014.  That aside, it was really more of the same: The Fed postponed an interest-rate increase, and it followed up its decision to postpone a rate increased with the usual noncommittal, vague language. To wit: “Near-term risks to the economic outlook appear roughly balanced.” What are near-term risks and how do we know if they are roughly balanced? Your guess is as good as ours.

December looks like the next opportunity for a rate increase.  At the beginning of the year, we predicted that any rate increase would be unlikely to occur until December. So far, we’re batting a thousand.

Then again, we wouldn’t be surprised if December produces another postponement. The U.S. economy continues to limp along. Sub-2% annualized GDP remains the norm.  What’s more, central banks around the world continue to implement loose-money policies. If the Fed applies a tightening monetary policy while other central banks continue to loosen (namely the Bank of Japan and the Bank of England) this will only amplify any Fed action: A strong dollar becomes even stronger; a sell-off in risky assets becomes more intense.

Today, traders in fed funds rate futures contracts are offering 58% odds of a rate increase at the Fed’s December meeting. Don’t be surprised if those odds drop as December nears. 

Information provided by Jessica Regan.

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