The Fed Calms The Markets
In what was one of the most widely telegraphed moves ever, last week the Federal Reserve Board’s Federal Open Market Committee met and decided to raise their federal funds rate by .25%. To say that this move of raising rates was expected is an understatement. The Fed had talked of raising rates for so long that the only surprises which could have come from the meeting was no increase at all or a larger increase.
Actually, the lack of a surprise was in keeping with Fed policy, as it is their goal to be as transparent as possible with regard to their monetary policy. And because there was no surprise, there was no great reaction in the markets. Rates had already risen slightly in anticipation of the decision, but eased a bit afterwards as stocks turned negative as the week came to a close.
As we have been indicating all along, the Fed’s words accompanying their actions would be as important as the Fed’s actions themselves. So what did they say? Here is an excerpt: “The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.” Thus, the wording was designed to provide further assurance that the Fed is not going to be raising rates rapidly in a knee-jerk reaction. This is good news for those who want to purchase real estate in 2016. Rates are still at historically low levels and the Fed does not want to upset the apple cart too quickly.
The Monday Market Update
Rates on home loans were slightly higher again in the past week going into the Fed’s rate decision. Freddie Mac announced that for the week ending December 17, 30-year fixed rates rose to 3.97% from 3.95% the week before. The average for 15-year loans increased slightly to 3.22%. Adjustables were mixed, with the average for one-year adjustables increasing to 2.67% and five-year adjustables remaining at 3.03%. A year ago, 30-year fixed rates were at 3.80%, a bit lower than today’s levels.
Attributed to Sean Becketti, chief economist, Freddie Mac –“As was almost-universally expected, the Federal Open Market Committee (FOMC) of the Federal Reserve elected this week to raise short-term interest rates for the first time since 2006. We take the Fed at its word that monetary tightening in 2016 will be gradual, and we expect only a modest increase in longer-term rates. Rates on home loans will tick higher but remain at historically low levels in 2016. Home sales will remain strong, but refinance activity should cool somewhat.”
Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.