Tuesday, November 3, 2015:
The Federal Reserve Open Market Committee (FOMC) held their second-to-last meeting of 2015 last month on the 27th and 28th of October. As every one predicted (except me), they did not raise interest rates. Once again, however, they dropped hints that they might decide to do so soon. No specific date for such an increase was specified, but analysts are again speculating that an increase could occur at their last 2015 meeting, scheduled for Dec. 15-16, or at their second 2016 meeting, schedule for March 15-16. Both of those meetings will be followed by news conferences with Janet Yellen, Chair of the Fed, providing her with an appropriate forum for such an announcement.
What's really interesting about this speculation is that it is still occurring. Six months ago, most analysts were confident that a rate increase would already have occurred. A strong economic recovery, combined with a soaring stock market, made for almost overwhelming odds that such an increase would have already happened.
The reasons it did not are, by now, familiar: a slowing Chinese economy that, briefly, send US and world stock markets into a panic; sluggish recent job creation numbers in the US; and falling oil prices indicating a global economic slowdown. All of these conditions persist and have given the Fed sufficient reason to delay any change in the longstanding low interest-rate environment that we have enjoyed since the onset of the recession. In fact, short-term rates have been set at zero to 0.25% continuously since January 2009 and have been 2% or lower since May 2008. By Fed standards, that's an eternity; this run of low rates is unprecedented in Federal Reserve history.
Whether the Fed raises rates in December, or March, or possibly even later in 2016, one positive outcome of all of this "on again/off again" drama is the dawning realization that rates are unlikely to go zooming up, even when the Fed does finally start to move them higher. The Fed's current hesitancy to do anything dramatic is an indication of the economic headwinds the global economy still faces. And these headwinds seem pretty entrenched. When rates finally do start to rise, they are unlikely to do so rapidly, giving everyone time to adjust to the change.
If this is, indeed, what the future holds, it bodes well for property owners. It means low to moderate interest rates will be around for a while, removing some of the pressure to refinance right away. Of course, like anything, today's economic status quo can give way quickly to new realities. No one should bank on the current low-rate environment lasting forever. That said, it does not seem unreasonable to assume that rates are unlikely to jump quickly, at least for another year or two and possibly longer.
Meanwhile, the US economy does seem to have recovered from the China shock of last summer, at least if the stock market is any indication. After dropping well below 16,000 in late August, the Dow Jones has climbed all the way back up to 17,663 as of Friday's (Oct. 30) close and has been on a pretty steady upward trajectory since late September.
Speaking for all property owners, I think it's fair to say that we like the Goldilocks economy – just enough positive economic news to keep things moving in the right direction, but not so much that the Fed feels compelled to take dramatic action. For right now at least, the porridge seems to be neither too hot nor too cold but, as our heroine likes it – just right!
Steve Cain, RPBG Director – Writer/Editor