On the heels of the first rate increase in 8 years, the
US Federal Reserve's Open Market Committee (the Fed) opted to leave its target
overnight rate unchanged at a range of 0.25 to 0.50 per cent. In the statement accompanying the Fed's
decision, it was noted that with gradual adjustments to the stance of monetary
policy, economic activity will continue to expand at a moderate pace and labour
market indicators will continue to strengthen. The Fed expects that inflation
will remain low in the near term, but slowly rise to 2 per cent over the medium
term as the impact of low energy prices fades.
While early speculation was that the Fed would raise
rates at least four times this year, a slowdown in the economy to end 2015
along with still tame inflation and volatility in financial markets will likely
put monetary policymakers on a much more cautious footing. We expect that the Fed will raise rates a
maximum of one more time in 2016 which should translate to very little upward
pressure on Canadian bond yields and mortgage rates.
Copyright BCREA – Reprinted with permission
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