The Market Response:
Government of Canada Bond Yields immediately dropped by 5% in the wake of the announcement. The Loonie, on the other hand rose slightly, while a further dip was likely had there been a rate hike. Oil wasn’t noticeably affected by the announcement, but overall the markets certainly approved.
What the Federal Reserve Said:
“Monetary Policy will remain significantly accommodative for quite some time.”
US GDP expanded at 2.25% in the first half of 2015 which was stronger than the Fed expected. However, Inflation is running below the Feds objective.”
There are many factors at play that lead to the Fed’s decision to keep rates where they are and maintain an accommodative monetary policy.
These factors are as follows:
- Global Economic Risks. This means that U.S. rates are partly determined by how bad the situation in China becomes.
- Lower Inflation. Due to weak oil prices and a stronger US Dollar it is taking longer for Inflation to get to the Federal Reserve’s 2% target.
- Labour Market. The employment rate is still not where the Fed would like it to be. Clearly employment is a big factor in the decision to keep rates where they are.
Although most Fed insiders continue to believe that rates will increase in 2015, some participants now believe that a rate hike should be put off until 2016. But regardless of when the hike occurs, and by how much, the Fed was very clear that their policies would remain highly accommodative for some time. If and when rates do begin to increase, they will likely increase very slowly and be accompanied by continued monetary stimulus.
What does this mean for your mortgage?
Stay variable!
Today’s announcement will likely cause Fixed Rates to drop in the coming days. We won’t see a massive drop in the 5 year fixed rate, but some rate specials will be coming out and most lenders will likely drop their rates by at least 0.05%. If you or someone you know is trying to make a decision let them know that we’re always here to provide sound, unbiased mortgage advice. Now is a fantastic time to get MorCan Direct to step in and negotiate with your existing mortgage lender to get you a better rate!
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