The FOMC Continues its Hold on Rates

Categories : Procurement Goals | Set Strategy | Assess Opportunity
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Published on : Sep 22 2016

By: IBISWorld Analyst, Braden Basely

The Federal Open Market Committee (FOMC) voted to leave the target range for the federal funds rate unchanged at 0.25 to 0.50 percent following meetings on Tuesday and Wednesday of this week. Despite a strengthening labor market, inflation has remained below the central bank’s two percent goal, which underpinned the FOMC’s decision to uphold the current target range.

Despite indicating a plan for several rate hikes in 2016, the FOMC has not raised interest rates since December 2015, which was the first increase in nearly a decade. Modest domestic economic growth and greater uncertainty in the global economy have prompted the FOMC to reassess its plan for raising interest rates, fearing that such policies would exacerbate the risk of a downturn in the US economy.

Nonetheless, the FOMC stated that the case for an increase in the federal funds rate has strengthened as near-term risks to the economy, chiefly the prospect of a major slump in global markets following Brexit, have subsided. If current economic conditions continue to hold, it is probable that the FOMC will raise interest rates at least once by year-end, most likely in December. Economists project the magnitude of this increase to be 25 basis points, or another 0.25 percentage points.

The lower the interest rate, the cheaper it is for businesses to borrow money in order to purchase goods and services. Therefore, changes in the federal funds rate have a material impact on amortization schedules for services like Fleet Vehicle Leasing and Equipment Financing Services. As a result, IBISWorld projects that this stagnation in interest rates will temper the magnitude of growth in the prices of these services in the three years to 2019. Moreover, changes in interest rates directly impact the prices of Business Credit Card Services and Commercial Lending Services. Thus, current trends in the federal funds rate are anticipated to also moderate the extent of price growth in these services during the next three years.

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