Rate Rises Again in Second of 3 Expected Hikes

Rate Rises Again in Second of 3 Expected Hikes

Published by: RISMedia, June 15, 2017

The Federal Reserve voted on Wednesday to raise the key interest rate one-quarter percentage point, ticking off the second of three hikes slated for this year. Analysts largely predicted the outcome, even as lagging inflation gave cause for concern.

“In view of realized and expected labor market conditions and inflation, the [Federal Open Market] Committee decided to raise the target range for the federal funds rate to 1 to 1-1/4 percent,” according to a statement by the Fed. “The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.”

The key rate, though not directly tied to mortgage rates, exerts influence in housing. The majority of both homeowners and prospective homeowners recently surveyed by Berkshire Hathaway HomeServices reported rising rates are “a challenge facing the real estate market today.” Fifty-five percent of millennials—the current generation of first-time homebuyers—reported disheartened feelings about buying a home as a result of rising rates, while 68 percent reported pressured feelings about buying a home ahead of future growth.

The Fed stepped up policy late last year, voting to carry out the first and only hike of the year, while signaling three hikes in 2017, in December. The Fed began to make good on its promise in March. Mortgage rates have remained in flux since then, dipping back below 4 percent in April for the first time since the presidential election, and, more recently, in a falling pattern.

“We expect mortgage rates will remain above the previous years through the summer as the Federal Reserve continues to tighten monetary policy,” says Ruben Gonzalez, economist at Keller Williams. “While the increase in rates by the Fed has been well anticipated given the progress seen in unemployment, low inflation and wage growth are still a concern, and we anticipate they will move forward cautiously in the second half of the year given the asymmetric nature of policy available to counteract an economic slowdown versus a nascent acceleration in inflation.”

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