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Readjusting After the Storms: Fed Rates

After the two approved rate hikes in March and June, in their recent projections, the Federal Reserve has indicated a third hike in 2017. However, the implications of Hurricane Harvey and Irma hitting the U.S. coast within three weeks of each other could mean a holding back of the expected hike until well into 2018, according to industry experts.

Due to the uncertainty natural disasters have on markets, investors have been on edge. Goldman-Sachs and Bank of America-Merrill Lynch have adjusted their growth projections to reflect a 1 percentage point and 0.4 percentage point decrease respectively.

"I think [the hurricanes] may be an excuse for the Fed to hold back again from raising interest rates,” Hugh Young, Aberdeen Standard Investments' Asia head, told CNBC's "Squawk Box," on Monday. “I think that will be a logical conclusion."

Interest rate hikes could mean higher mortgage rates and, in turn, affect home affordability. William Dudley, New York Fed President, confirmed Friday that a delay in the rate hike could happen, but that ultimately the rebuilding efforts following the storms will boost economic activity.

"I think it's too soon to judge exactly the timing of when the next rate hike might occur,” he said. “But I think the path is clear that of short-term rates are going to move gradually higher over time."

Dudley said short-term rates will depend on how the economy evolves, but it’s currently growing above trend. What that means for the Fed is they need to continue to remove accommodation.

"I would expect that by the time we get to the end of the year and early 2018, the transitory negative effects of this storm I think will be over and we actually will start to see some of the benefits of the rebuilding efforts in terms of boosting the economy," Dudley said.

About Author: Brianna Gilpin

Brianna Gilpin, Online Editor for MReport and DS News, is a graduate of Texas A&M University where she received her B.A. in Telecommunication Media Studies. Gilpin previously worked at Hearst Media, one of the nation's leading diversified media and information services companies. To contact Gilpin, email brianna.gilpin@thefivestar.com.

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