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Posted On June 13, 2017
The Federal Open Market Committee (FOMC) is hosting its policy meeting today and tomorrow. The Fed is widely expected to raise the benchmark interest rate from 0.75% to 1% to 1% to 1.25% following this meeting. At the end of 2016, the Fed projected three rate hikes for 2017 and has since raised rates once in March. How will this week’s expected rate hike impact mortgage rates and lending?
Mortgage rates are influenced by the higher federal funds rate, but the impact tends to be gradual. While mortgage rates are expected to increase, they do not rise sharply after a rate hike. According to MarketWatch, assuming the Fed increases federal funds by 125 basis points by the end of 2018, economists predict conventional mortgage rates will rise only approximately 38 basis points.
Borrowing for short-term loans will get more expensive. As rates increase, fees for checking accounts and short-term credit, like car loans and credit cards, will increase. However, as banks compete for savings account, they may start to pay higher rates on CDs.
Economic growth is expected to continue. The job market has posted some exceptionally strong reports recently. Jobless claims are historically low, job openings are abundant, and wages may finally start to rise. Consumer spending has been somewhat lagging, but an increase in interest rates is not expected to negatively influence these trends.
Federal Reserve Chair Janet Yellen will hold a press conference on Wednesday following the meeting. These press conferences allow economists to gauge the Fed’s current course of action and future moves. Inflation reports have been weaker in recent months, but the labor market remains strong. Still, markets are pricing in a near 100% chance of a rate hike tomorrow.