DC Executive Watch: New federal reserve chair, but not much else has changed

Correspondent

Texas Metro News

WASHINGTON D.C. – While he is a new Federal Reserve Chairman, Kevin Warsh kept it pretty much business as usual when he held his first meeting last week.

The central bank voted unanimously to keep the standard interest rate in the 3.50% to 3.75% target range.

This decision was said to reflect renewed inflation concerns but policymakers were noted to signal that interest rates will either stay on hold or rise before year's end.

Takeaways from the meeting this month included a discussion on the path of interest rates with the Fed's updating its "dot plot," which had most officials projecting at least one potential rate hike later this year to get inflation under control.

There were also talks of a new strategy involving communication with Warsh releasing a shorter policy statement than former Chairman Jerome Powell, specifically remaining on topic highlighting key facts and the Fed's commitment to price stability.

The overall economic outlook was discussed with the notion that despite a high level of uncertainty, the committee still reported the economy is expanding at a solid pace, even though inflation does remain above their 2% target.

Warsh also announced the formation of five independent task forces to review how the central bank conducts monetary policy and communicates with the public.

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And market reaction was considered with a "hawkish pivot," which did cause small pullbacks across major stock indexes. Even so, the benchmark 30-year mortgage rates remained steady around the 6.5% mark.

The next question is how all these decisions might impact mortgages and loans. To that end the Federal Reserve's pause will directly influence consumer borrowing costs by pricing in a "higher-for-longer" landscape.

For example, the benchmark 30-year fixed mortgage rate is 6.5%, however, according to Yahoo Finance since the Fed removed its "rate-cutting bias" and signaled potential future hikes, 10-year Treasury yields are facing upward pressure. In turn, this will prevent mortgage rates from ending up in previous lows.

The credit card variable-rate debt immediately responds to the cut with rates being frozen at 3.50% to 3.75%, as well as annual percentage rates (APRs) locked in at their current high levels.

As for auto and personal loans, lenders will continue to maintain higher underwriting standards and yields. The borrower will need to expect fixed-rate auto loans that will still be flat or slightly higher as the summer progresses.

One thing that was prominently noted was this first meeting with the new chairman was a strong philosophical and structural departure from the era led by Powell.

The next meeting will be held on July 28-29 and will highlight policy as well as an interest rate statement with updated economic projections also released at that meeting.

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The Federal Open Market Committee meets eight times a year to discuss monetary policy so following July's meeting a meeting September 22–23 will be a policy meeting, statement, and the next Summary of Economic Projections.

At the November 3–4 meeting there will be an interest rate statement shifted slightly due to the U.S. presidential election cycle and the December 15–16 meeting will be the final policy meeting of the year, with an updated SEP dot plot.

By the end of the year, it is expected there will be a higher cost of living felt alongside more expensive borrowing. On the upside however, according to Forbes there will also be a resilient job market and steady economic growth.

Rita Cook is a world traveler and writer/editor who specializes in writing on travel, auto, crime and politics. A correspondent for Texas Metro News, she has published 11 books and has also produced low-budget films.