Thursday, September 17, 2015

US Federal Reserve Interest Rate Decision

The US Federal Reserve ("the Fed") opted to leave its key interest rate unchanged at its current level of between zero and 0.25 per cent. In its accompanying statement, the Fed cited slowing global economic growth and continued low inflation as key factors in its decision. The Fed further noted that it will be appropriate to raise its target rate once it sees further improvement in the labour market and once it is convinced that inflation is on track to reach its 2 per cent objective over the medium term.

Focus will now shift to the Fed's remaining 2015 meetings in October and December. Whether the Fed chooses to act on rates this year or next, historically the correlation between Canadian and US long-term interest rates is very strong, even at times such as now when the two countries’ normally in sync monetary policy is heading in different directions. Therefore, as the Fed eventually moves to increase its target rate, there will likely be some upward pressure on 5-year interest rates in Canada. When paired with a recovering Canadian economy, this will likely translate to higher fixed mortgage rates by the middle of next year. 

Copyright BCREA - reprinted with permission 

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