Federal Reserve Chair Janet Yellen capped a week of rising expectations about an imminent interest rate increase by explicitly supporting a hike in mid-March if U.S. economic progress persists. There would have to be a major disruption with an economic report, or politically, over the next week, for there not to be a followup Fed rate hike when the Fed announces their position March 15.
How fast things change. The financial markets only perceived a 25% chance of a March rate hike a couple weeks ago. Last week it jumped up to 90-100%.
The Federal Reserve has kept rates at superficially low levels for close to 10 years to help pull the US out of the major recession. In addition to keeping the Fed rate low, the conducted “Quantitative Easing”. The Fed was the biggest buyer of US bonds and mortgage backed securities at the rate of $40 Billion a month starting in 2008, and over time the purchases escalated to $85 Billion a month.
Mortgage backed securities and the 10 year note have been volatile, but for the past 4 months have been staying within a trading range, as reflected in the 10 yr note chart. Purchases were halted on 29 October 2014 ]after accumulating $4.5 trillion in assets. Now regardless of what the Fed does with their Fed Funds Rate, they have indicated that at the appropriate time, will be liquidating some of the mortgage backed security portfolio. That will move mortgage rates higher, as it would add more supply to the financial markets.
Meanwhile the main things the Fed is looking at are the employment, and inflation levels. The economy has gotten better slowly since the recession. Part of that was the damage the recession made, but also the new regulatory environment slowed down any escalation of the recovery.
The new Trump administration is talking about cutting back on regulations, lowering taxes. and funding a trillion dollars of infrastructure spending. All elements are inflationary. We’ll see over time what actually gets implemented. Meanwhile the Fed is not waiting.
December 2015 was the first .25% Fed rate hike. They expected 4 in 2016. We only got one December 2016. They indicated we should have 3 in 2017. This year they may meet their projections. No doubt the Fed want to get the interest rates back to a historical norm. Consensus has Fed Funds at 1.5% in 2018.
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