Fed Announces Rate Hike

Dated: 03/21/2018

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Fed announces rate hike decision

The Federal Reserve’s governing board announced today that it was raising the benchmark interest rate, fulfilling the expectations of market watchers.

There was broad agreement that a March rate hike was virtually guaranteed. Applications for mortgages have picked up in recent weeks as consumers tried to beat the hike, according to a USA Today report. So it came as no surprise to analysts when the Fed announced that it was raising the federal funds rate a quarter point, from 1.5% to 1.75%.

The Federal Open Markets Committee said in a statement that the move was justified by encouraging economic indicators including strong job gains and low unemployment."

"Inflation on a 12-month basis is expected to move up in coming months and to stabilize around the Committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely," the FOMC said. "In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation."


First, consumer psychology: There's an entire cohort of potential homebuyers who have known nothing other than historically low-interest rates. But now, having seen the Fed raise rates, many of these homebuyers will get off the fence and into the market before rates go any higher or if they aren't on the fence, to seriously consider offering closer to list and making some repairs themselves as opposed to demanding more of the sellers. At the very least this should result in more demand through the peak spring and summer selling seasons, and may even drive enough sales to have a positive effect on the overall economy.

Second, lending standards: Higher interest rates may provide lenders with more of an incentive to make loans.  We are already seeing the loosening of guidelines and the return of ALT lending products to the market.

Finally, predictability: the 25 basis point hike was what most industry analysts had expected, which means it's possible that last week's hike won't cause mortgage rates to rise significantly from current levels and we still have historically low rates.

Motivated buyers, relaxed lending standards, and marginal mortgage rate increases, coupled with what appears to be strong wage and job growth could lead to one of the best spring selling seasons the housing market has seen in many years.


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Ana Natasha Ferguson

ANA (A New Approach) it is not only my name it is my way of life. I understand the significance of real estate decisions and its impact on people. Therefore, I help clients make informed real estate d....

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