Federal Reserve Hikes Rates, But Mortgage Rates Drop
Federal Reserve Hikes Rates
For just the third time in 11 years, the Federal Reserve increased its benchmark rate.
The group cited a strong economy. More than a quarter-million jobs were added in February, another strong month capstoning a six-year winning streak.
Households are spending again, and businesses are doubling down for future growth.
All signs point to an officially "recovered" economy on the horizon.
But with a recovered economy comes higher rates. While the Fed doesn't affect consumer mortgage rates directly, it can influence them.
The good news for rate shoppers is that mortgage rates are actually improving on the news of the hike. The official statement released at the end of the meeting was less aggressive about future rate hikes than the market planned for.
It's still a great time to lock in a rate.Verify your new rate (Jan 18th, 2018)
Fed: Hiking Rates By 0.25% Is Justified
Wednesday, the Federal Open Market Committee (FOMC) voted to hike the Fed Funds Rate to a range between 0.75-1.00 percent.
It's just the third increase in eleven years, but the pace of future hikes won't be as sluggish.
The group called for two more rate increases in 2017 for a total of three. But, that's less than the four-hike schedule some analysts expected.
The Fed is data-dependent, it reminded markets. The group's future moves will depend on the strength of labor markets, and on the pace of inflation within the economy.
The Fed's "job" is to balance those two forces.
Currently, labor markets are improving with job gains "strong" in December. The economy has now added 15 million jobs since 2010.
Job growth may start to ignite inflationary forces. Wages are ticking up. The Fed will eventually need to increase rates to cool rising price increases within the economy.
The Fed aims for a two percent inflation rate per year. Currently, inflation is running closer to 1.7%, which is still up from the near-1.5% level it's maintained for the better part of this decade.
That could change quickly, with the current on-fire stock market, rising oil prices, and unemployment at its lowest level since 2007.
The Fed used its statement to identify inflationary threats within the economy and to suggest the direction of future policy (emphasis added):
The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal 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 plain English, this says that the Fed will raise the Fed Funds Rate at a speed appropriate to the pace of inflation. Inflation rates are running low, but not alarmingly so. Future hikes will be gradual to lift inflation to the Fed's target.
Note that monetary policy can take a long while to work its way through the economy -- sometimes three quarters or more. The March rate hike would not be felt through the economy until the start of 2018.
The Fed is planning ahead.Verify your new rate (Jan 18th, 2018)
Fed Outlook For The Rest Of 2017
Four times per year, the Federal Reserve releases projections for future rate hikes.
Markets anticipate this report almost as much as the meeting announcement itself.
In this document, the Fed makes its own predictions for future rate hikes. Fed participants are asked when they think future hikes will happen.
The report carries more weight than predictions from market economists. It's coming from the source, after all.
Mercifully, March projections offered no surprises. The Fed still plans to hike rates a total of three times in 2017 (two additional times after this March increase).
That came as welcome news to mortgage markets. Mortgage rates actually improved after the Fed officially raised rates. Investors had already "baked in" a rate hike. That was nearly certain even before the FOMC meeting began.
However, markets feared that a fourth rate hike in 2017 was still on the table. Mortgage rates dropped on confirmation of the contrary.
As a mortgage shopper, it's a very good time to lock a rate.
Lenders are now offering 30-year fixed rate VA and FHA mortgages in the low-4s. Conventional loan rates aren't much higher.
According to Ellie Mae, a software provider that processes millions of applications per year, lenders are issuing loans at the following average rates:
- Conventional loans: 4.48%
- FHA loans: 4.28%
- VA loans: 4.08%
Today's rates are holding well below the historical average of more than 8%.
What Are Today's Mortgage Rates?
Mortgage rates remain cheap and the Federal Reserve appears intent on keeping them in check. Markets often change without notice, however. Lock a loan while rates are still low.
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Verify your new rate (Jan 18th, 2018)
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