If Fed Policy Is Still Easy, Consumers Aren't Getting the Memo

(Bloomberg) -- Federal Reserve officials say interest rates are still low enough that they continue to stimulate the U.S. economy. New data from a University of Michigan survey suggests that may no longer be the case.

The share of U.S. consumers who cited low interest rates as a reason it’s a good time to buy houses, vehicles or large household durables -- like furniture, refrigerators or televisions -- fell to 14 percent on average this month, down from 32 percent two years earlier.

At that time, in August 2016, Fed officials had authorized only one quarter-point hike of their benchmark rate following seven years near zero. Now, after six more increases, the federal funds target is just under 2 percent -- higher but still well below historical averages.

If Fed Policy Is Still Easy, Consumers Aren't Getting the Memo

But the proportion of consumers in the Michigan survey reporting favorable buying conditions due to low interest rates is also well below historical averages -- it’s only been lower 13 percent of the time in monthly data from 1980 -- which suggests the impact of Fed tightening may be kicking in at lower borrowing costs than in the past.

The poll numbers may help inform the current debate inside the Fed over whether monetary policy is still “accommodative,” as officials have been saying in the statement they publish after their twice-quarterly policy meetings.

That word may soon be removed from the statement, minutes of the central bank’s July 31-Aug. 1 meeting suggested. Most participants on the Fed’s rate-setting committee believe the so-called neutral rate, which in theory is the interest rate consistent with a stable unemployment rate and is estimated using statistical models, is in the range of 2.5 percent to 3 percent, which means a few more quarter-point hikes will get them there soon.

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