Interest rates to return to ‘normal’ levels in ‘year or so’
October 22, 2018
WASHINGTON – Oct. 19, 20
18 – New York Federal Reserve President John Williams predicts that the Federal Reserve's target interest rate would return to normal or neutral levels within "the next year or so." The rate directly impacts adjustable-rate mortgages but only indirectly affects fixed-rate mortgages.
Williams said that a return to a neutral-rate level will better prepare the central bank for economic inflation or deflation that may merit a rate increase or decrease. The Fed generally lowers interest rates if the economy is slowing as a way to boost output; and it generally raises interest rates when the economy is booming in order to slow progress and lessen the chance of a major economic downturn later on.
The Fed has raised rates eight times in the last three years, and policymaking officials last month suggested that hikes will continue into the foreseeable future – from 3.1 percent by the end of 2019 to 3.4 percent at the end of 2020.
In a speech before a press briefing, Williams emphasized that as Fed policy normalizes, "it will no longer be clear whether interest rates need to go up or down, and explicit forward guidance about the future path of policy will no longer be appropriate."
Source: Wall Street Journal (10/10/18) Derby, Michael S.; Zumbrun, Josh