Feds Raise Interest Rates

The lenders had already raised rates in anticipation of this .25% hike.


The Fed meeting was essentially the only focus for investors over the past week. Financial markets experienced a great deal of volatility both before and after Wednesday’s highly anticipated Fed announcement. The net result for mortgage rates was that they ended the week a little higher.


 After holding the federal funds rate near zero for seven years, the Fed announced on Wednesday a widely expected rate hike of 25 basis points. According to the Fed statement, there has been “substantial improvement” in the labor market, and the economy is on a path of “sustainable improvement.” Regarding future policy, Fed officials expect that economic conditions will warrant only “gradual” increases in rates. The statement also noted that the Fed does not expect to reduce its holdings of MBS and Treasuries any time soon. While there has been a wide range of forecasts about what “gradual” means for future rate hikes, investors overall were pleased that the Fed does not appear to be in any rush to take additional steps to tighten monetary policy.


The Fed’s dual mandate includes striving for maximum employment and stable prices. There is little disagreement that the labor market has been steadily improving. Inflation has remained below the Fed’s desired rate, however. In the statement, Fed officials expressed that they were “reasonably confident” that inflation would rise to their target level.


One widely followed indicator released on Tuesday, the consumer price index (CPI), showed that core inflation in November continued its steady climb seen this year. Core inflation excludes the volatile food and energy components. Another measure important to the Fed, the core PCE price index, has shown little indication of a pickup in core inflation. The November reading for core PCE will come out next week.



Next week, Existing Home Sales and revisions to third quarter GDP will be released on Tuesday. Durable Orders, New Home Sales, Personal Income, and the core PCE price index, the Fed’s preferred inflation indicator, will come out on Wednesday. Mortgage markets will close early on Thursday and will be closed on Friday in observance of Christmas. Mortgage markets often are more volatile than usual during the last two weeks of December due to lighter trading volumes.

About valoliver

I was born in San Francisco, raised in San Mateo. I have three children. I have been in the Mortgage industry for over 30 years.
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