It’s official: the Fed has raised its benchmark funds rate by one-quarter percentage point.
The rate hike announcement was made by the Federal Open Market Committee on Wednesday during their March meeting, marking the first rate hike under Jerome Powell as Federal Reserve chairman.
In a statement, the Fed cited a low unemployment rate and strengthened economy as key factors for the rise in rates:
“Job gains have been strong in recent months, and the unemployment rate has stayed low. Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth quarter readings…The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong.”
This hike raises the target federal funds rate from a range of 1.25%-1.5% to 1.5%-1.75%. If you’re unfamiliar with the target federal funds rate, it’s essentially the rate that banks and financial institutions charge one another for loans.
So will this rate hike raise mortgage rates?
Perhaps, but it’s not a given. According to Bankrate, just last year rates remained fairly steady despite three rate hikes. And yet, mortgage rates began to climb in the beginning of 2018, even before this Fed announcement was made.
So if recent history has shown us anything, it’s that it’s difficult to predict how the Fed’s decision will impact mortgage interest rates.
But if you’re considering a home purchase or refinance in 2018, it’s at least worth noting economists are forecasting two or three more rate increases by year’s end.
Here’s what Bryce Doty, senior vice president of Sit Fixed Income Advisors, said earlier this year:
“As expected, the Fed is more optimistic on economic growth and is more confident that inflation is going to rise to their two percent target. We continue to expect four rate increases in 2018."
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