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The Week Ahead: Will the Fed Follow Up on Rate Increases?

21 March 2017, 01:56 | Melvin Schneider

The Week Ahead: Will the Fed Follow Up on Rate Increases?

The Week Ahead: Will the Fed Follow Up on Rate Increases?

"Given continued solid job growth and recent income gains, we believe this pace of rate increase will not derail the ongoing housing recovery".

Elsewhere, market participants were also digesting comments by Chicago Fed president Charles Evans who told Fox News that the Fed was on track to raise rates twice this year and could be more or less aggressive depending on whether inflation picked up or not. To be clear, the Fed's dot plot is typically out-of-whack with the Fed's actual rate hike timetable, but changes at its margins are still considered material.

Federal Reserve Bank of Minneapolis President and CEO Neel Kashkari defended his status as the lone member of the central bank's Federal Open Market Committee (FOMC) to vote against an interest rate hike in a 13-page essay that challenged the Fed's policymaking process.

In a piece for HousingWire, he writes that the Fed's actions might actually be good for the housing market.

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Also, he says, lending standards should loosen and mortgage rates will only moderately increase.

"We do not have a high-inflation threat right around the corner", Kashkari said during an interview on Bloomberg Television Monday, adding that the lack of price pressure affords the Fed patience in raising rates. "Yes, many existing homeowners will have a financial disincentive to sell because they would lose their lower than prevailing mortgage rates in doing so, the so-called rate lock-in effect". Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.8 basis points to 2.473 percent. Five-year fixed-rate mortgages are available at rates as low as 2.44% for high-ratio buyers, and at rates as low as 2.49% for low-ratio buyers.

The Bottom Line: The Fed raised its policy rate last week but the market's reaction was tempered by the its accompanying press statement, which confirmed that the Fed would remain cautious before initiating further rate increases. As such, the spike in our fixed mortgage rates that some had feared did not materialize, and that means its steady-as-she goes for both our fixed and variable mortgage rates.



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