Posted On December 16, 2016
As expected, the FOMC raised key interest rates 0.25 bp to 0.5% - 0.75%. The strengthened labor market and expectations for accelerated inflation warranted the rate increase. FOMC Chairwoman Janet Yellen affirmed, “it’s important for households and businesses to understand that my colleagues and I have judged the course of the US economy to be strong.” The rate increase will have a continuing impact nationally and internationally. Following the Fed rate increase, mortgage rates ticked upward as well.
The National Associations of Home Builders’ Index increased dramatically from two months resting at 63 to 70. The NAHB attributed the spike to post-election confidence. An excerpt from the official statement read, “builders are hopeful that President-elect Trump will follow through on his pledge to cut burdensome regulations that are harming small businesses and housing affordability.” This month’s reading marks an eleven-year high, the highest since July 2005.
Housing starts in November dropped 18.7% from October’s nine-year high. Building permits fell just 4.7% showing less volatility. Both housing starts and building permits slowed down on a year-over-year basis at 6.9% and 6.8% respectively. Home builders’ confidence and the lack of available existing homes for sale indicate that housing starts and building permits will pick up again.
As reporters prodded the FOMC about President-elect Trump’s potential impact on the national economy, Yellen asserted that the central bank is independent of the presidency. The FOMC now predicts three rate hikes in 2017, indicating the economy is strong enough to warrant higher rates.