As expected, the Federal Reserve increased their overnight Fed Funds rate 25 basis points to .75-1.0%. Fed Chair Janet Yellen reiterated the Fed’s position that the economy continues to grow at a moderate pace, meeting the inflation and employment targets, and the scheduled three rate increases for this year stay in play. She maintains the Fed prefers the “slow and gradual” approach, rather than being behind the curve, and having to increase rates faster.
A couple interesting statements made by Yellen during her news conference…
The Fed is not using theoretical fiscal stimulus that may come from Trump’s conveyed agenda (tax changes, deregulation, infrastructure spending, etc) into their equations. Personally, that makes sense. Any elements of Trump’s agenda that may get passed, will take a while to work it’s way through the economy. The Fed will have time to make adjustments. Meanwhile the stock market has many changes built into their valuations. That shoe could drop, if economically helpful policies aren’t moved forward.
Yellen also indicated that any liquidation of the $4+ trillion Fed balance sheet of mortgage backed securities and US notes that they purchased during Quantitative Easing, would be show, and well telegraphed to the market. This move would be critical, as if the Fed was to sale a substantial quantity of the MBSs, it would be competition for new securities, increasing mortgage rates.
Meanwhile the long end of the interest rate curve took the Fed rate increase in stride, and we had a mid-day mortgage rate change to the downside. This may seem counter intuitive, but this is not unusual. Many times when the financial markets perceives the Fed is going to be adequately aggressive and keep inflation in check, the long side of the rates drop. End result is a flattening of the yield curve.
Expect an immediate increase in interest rates in adjustable rate debt (home equity lines, credit cards, etc). The Prime Rate is directly attached to the Fed Rate, and not market based.
Things to watch going forward… Will Trump’s agenda move forward and become inflationary? Will Brexit and European politics have an effect on the financial markets? Is the stock market ready for a meaningful correction? Will Korea behave? (there are several outstanding Black Swans that can effect the market)
If you are in the Los Angeles area, have any questions or real estate sales or financing needs, feel free in contacting me.
Ron Henderson GRI, RECS, CIAS
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth