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50 FED KEEPS FEDERAL FUNDS TARGET RATE STATIC FOR NOW e Federal Reserve decided to keep the federal funds target rate at zero to 1/4 percent, where it has been for nine years, at the September meeting of the Federal Open Market Committee (FOMC). "In determining how long to maintain this target range, the Committee will assess progress—both realized and expected—toward its objectives of maximum employment and 2 percent inflation," the Fed said in a statement. "is assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. e Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. Fed Chairman Janet Yellen has stated repeatedly that sufficient economic growth, particularly in the labor market, needed to occur before the Fed could raise rates. e Fed issued a statement after the July FOMC meeting saying that "To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate." According to the August 2015 Employment Summary from the Bureau of Labor Statistics, 173,000 jobs were added during August as the unemployment rate dropped to 5.1 percent and the number of unemployed persons fell to 8 million, declines of 1 percentage point and 1.5 million people year-over-year, respectively. e average hourly wage jumped by 8 cents up to $25.09, a 2.2 percent year-over-year increase. Meanwhile, the Bureau of Economic Analysis reported that the nation's real GDP grew by 3.7 percent for its second estimate for Q2, way ahead of expectations. Fannie Mae SVP and Chief Economist Doug Duncan said in early September after the BLS issued the August 2015 Employment Summary that, "We continue to call for a September lift-off, with a one-and-done hike this year on the way to normalizing monetary policy going forward." Trulia Chief Economist Selma Hepp said she believed the Fed was unlikely to raise rates in September, stating that "While the U.S. job market is in its third year of robust growth, the Fed is taking a broader and more comprehensive approach in making their decision. Recent stock market volatility as well as slowing economic growth abroad will be major factors, as will the U.S. economy's persistent improvement." e debate over whether it was time to raise rates was intensified in the last month as economic volatility in China has caused turbulence in the U.S. stock market in August. New York Fed president Bill Dudley said that a rate increase in September seemed "less compelling" following turbulent stock market activity. Richmond Fed President Jeffrey Lacker, however, advocated for a raise in rates, saying he was "always open to listening to my colleagues in the meeting," and that he was "going in (to the September FOMC meeting) with an open mind." St. Louis Fed president James Bullard said in early September that he thought the U.S. central bank was in "good shape" to raise rates and that the chances of such an increase are greater than 50 percent despite recent volatility in the stock market. Even with an increase, Hepp said "Any increases will be modest and gradual" which means "the actual impact on homebuyers will be minimal." First American Chief Economist Mark Fleming said of a potential rate increase that "e housing market isn't doomed to fail, but rather adjust to the reality of interest rates that are reflective of a strengthening economy and certainly more traditional financial conditions. Is the housing market doomed? No, but the housing market will modestly adjust to a Fed rate increase." ECONOMIST: RELATIONSHIP BETWEEN SLOW ECONOMIC GROWTH AND INCOME INEQUALITY IS TENUOUS A commentary published by the Federal Reserve Bank of Cleveland found that slower economic growth has had little effect on income and wealth inequality in the United States. Daniel Carroll, an economist with the Cleveland Fed, and Eric Young, a professor at the University of Virginia, contend in their commentary titled "Zero Growth and Long Run Inequality" that "to the extent that different rates of trend growth are associated with changes in wealth inequality, lower growth tends to yield less inequality rather than more." Carroll and Young addressed research by omas Piketty which concluded that income inequality and wealth inequality increases as economic growth slows. Whereas Piketty's research made certain assumptions about the evolution of wealth distribution and the output of the economy, Carroll and Young based their commentary on a more sophisticated treatment of income and wealth distributions, such as those found in world contexts, according to the Cleveland Fed. Using this model, Carroll and Young determined that not only is inequality weakly related to long-run economic growth, but that income and wealth inequality tend to be lower when economic input remains the same over time and the long-run growth rate stays at zero. e direction the relationship between economic growth and income inequality takes is dependent on the interchangeability of capital and labor in production, according to the Cleveland Fed. "When they are strong substitutes for each other, inequality can become very extreme, exactly as Piketty describes," Carroll and Young wrote. "On the other hand, when capital and labor are less interchangeable or when they work together, as the empirical literature strongly suggests, long-run inequality is lower under zero growth." When contemplating a world with extreme capital accumulation, Carroll and Young state in their commentary that this idea is of particular importance. "In such an environment, capital would be very abundant relative to labor," Carroll and Young wrote. "Unless the two factors are very substitutable, the relative scarcity of labor would drive up wages relative to the rental rate (of capital). All else being equal, this relative rise in the wage would increase labor income relative to capital income and thus reduce income inequality." The aggregate value of negative equity in homes for the second quarter of 2015, a decline of $28.5 billion from the previous quarter. Source: CoreLogic STAT INSIGHT $310 Billion

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