Fed Declines to Lower Prime Lending Rate...For Now

June 20, 2019

After two days of internal discussions, the Federal Reserve decided yesterday to stay the course by not altering its benchmark short-term interest rate.

 

Despite months of haranguing by President Donald Trump--and slowing economic growth--the Fed declined to lower the prime lending rate from its current range of 2.25 and 2.5 percent.

 

In a prepared statement, the Fed affirmed that the US economy remains strong while "uncertainties about this outlook have increased."

 

                                                       (Photo Credit: wsj.com)

"In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion," according to the statement.

 

The Fed's forecast predicts US economic expansion of 2.1 percent for 2019, a substantial drop from the 2.9 percent charted in 2018.  Meanwhile, inflation is expected to fall to 1.8 percent from the 2 percent documented in May of this year.

 

Fed Chairman Jerome Powell indicated that his advisors are concerned with two big issues: Trump's trade wars and a slowing global economy.  Earlier this month Powell stated that the Fed is open to lowering rates to counteract any impact from the US trade war with China in particular.

 

Clearly, the Fed's lending rates are relevant to commercial real estate lending rates as well as home mortgage rates and even home equity lines of credit and credit card interest rates.  Today's commercial lending rates range from 3.3 to 5.4 percent for conventional loans while rates offered by the large insurance companies range from 3.2 to 5 percent.

 

Residential real estate rates have a much broader range depending on a number of factors.  But the spectrum is from about 4 percent to nearly 9 percent.

 

Trump is banking on a strong economy to bolster his re-election bid.  He has reportedly considering demoting or firing Powell if the Fed doesn't engage in efforts to fuel strong growth.  Yet Powell remains dedicated to carrying out the Fed's established mission and methods.

 

"I think the law is clear that I have a full four-year term and I intend to serve it," he said yesterday.

 

 

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