As expected the Federal Reserve increased their Fed Funds Rate another 1/4% at today’s FOMC meeting to 2.0%. Here are some take aways from the Fed Chairman Jerome Powell’s news conference, and the markets reaction.
Basically no change in Fed policy. Steady rate increases. Slow liquidation of the Fed’s $4T balance sheet accumulated during the Quantitative Easing (Fed’s purchasing of bonds, notes and mortgage backed securities artificially lowering interest rates after the financial meltdown in 2008)
The economy is doing well, inflation hanging around the Fed’s 2% target (personal consumption expenditure presently at 1.8% minus food and energy), employment level is strong and lowest level in 20 years
Employment participation rate is steady, even with the aging population retiring. There are a lot of variables, and the Fed has a hard time determining the true unemployment rate.
Fed rate targets 2.38% (2018), 3.13% (2019), 3.38% (2020), 2.9% long run
1 maybe 2 more rate increases in 2018. Ultimately in the next couple years around 1.5% higher than where we are at presently.
The 10 year note popped backed up to it’s resistance level at 3%, but then backed off (see chart point D). The 10 year note rate is critical as mortgage rates track the moves of that treasury. Point A the rate hit the recent low in September 2017 at 2.0%, and it has been on a slow climb to 3% that was hit mid-May. The rate dropped a couple weeks ago below 2.8% because of a temporary fight to safety for international currencies when there was financial/political issues in Italy.
It the Fed hits it’s target of 3.38% for the Fed Rate, we should see 30 yr mortgage rates around the high 5% to 6% range range.
The 2 year minus 10 year chart shows a very flat yield curve only .4% difference. An inverted yield curve (where the long term rate goes below the short term rate) generally can indicate a recession may be coming. If the Fed increases rates slowly, and there’s no major economic shock, recession should be avoided for a couple years. The 2.9% long term rate conveys the Fed expects to back off your their peak target at some point. It also indicates the rate is targeted well below historic averages.
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
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
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
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