More on the Federal Reserve Rate Increase

Filed under: Market Comentary

fedAs I am sure you know by now, the Federal Reserve approved a quarter-point increase in its target funds rate on Wednesday, December 16. This was expected.

The decision was given approval from the Federal Open Market Committee (FOMC) and marks the first increase since June, 2009.

The FOMC statement said, “Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic conditions, the committee decided to raise the target range for the federal funds rate 1/4 percent.”

FOMC officials made it very clear in its post-meeting documents that the pace of increases will be gradual and dependent on the quality of economic data.

The statement also explained, “The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

In addition, the statement added, “The committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen.”

What does an increase in the federal funds rate mean to your mortgage? If you are a home owner with a 30-year fixed rate mortgage, it will not have an impact on you. That is what is great about a fixed-rate.

Doug Duncan, chief economist of Fannie Mae expects last week’s Fed hike to have virtually no immediate impact on Treasury or mortgage rates, noting markets already have priced in the move. Assuming the Fed raises its rate by a percentage point over the next year, Duncan expects 30-year mortgage rates to only climb a little.

If you have any questions about this or any other aspect of the mortgage industry, please feel free to give me a call.



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