The Federal Reserve has left little doubt that it will raise interest rates Wednesday (3.15.2017) for the third time since December 2015 to reflect a consistently solid U.S economy. The rate increase will likely go down as one of the most telegraphed ever, given that several Fed officials, including Chair Janet Yellen, each let it be known over the past two weeks that they felt it was time to raise the Fed’s benchmark short-term rate.
The thinking was that the Fed would want to see whether President Donald Trump’s ambitious economic program of tax cuts, deregulation and higher spending on the military and infrastructure could pass Congress — and then assess how it might affect the economy.
Now, the guessing switches to how many times the Fed may raise rates during 2017 — whether three times, as the market now expects, or perhaps as many as four.
Yet regardless of the answer, the market seems far less nervous about the prospect of rate increases than it was in recent years. Investors seem increasingly confident that the U.S. economy is vigorous enough to withstand modestly higher borrowing rates.
Fed projections and dot plots
The Fed’s expectations for GDP growth increased slightly to 2.1% in 2018, while forecasts for unemployment remained mostly the same, with officials expecting the rate to fall to 4.5% by 2019. Officials raised their short-term outlook for core PCE inflation to 1.9% this year.
While projections for the federal funds rate rose across the board, the total number of expected rate hikes in 2017 remained unchanged with three quarter-point raises. In December, Fed officials raised their forecasts for the pace of rate hikes after the election of Donald Trump, which sent inflation expectations surging.
Officials also forecast three rate hikes in 2018, with the rate reaching its long-run goal of 3.0% in 2019.An increased number of Fed officials are expecting to raise rates at least twice more this year. Only three of the 17 officials who submitted forecasts now expect the central bank to move more slowly. There was a similar coalescing around tighter policy for the following two years, although the median prediction of a 3 percent funds rate by the end of 2019 remained unchanged. The rate hike will increase the upward pressure on interest rates that consumers pay, but the immediate effect is likely to be modest. People with credit card debt are likely to see an immediate increase of about a quarter percentage point in their interest rates. The effect on longer-term loans is less direct, but the average rate on a 30-year mortgage rose by half a percentage point over the last year. The Fed has concluded that the economy is growing at something close to its maximum sustainable pace.
“That Fed move is already built in to rates” for other products (like mortgages), added Barnes — which seems to be the consensus from other experts, too.
The Federal Reserve sets the rate for the overnight exchange of money by banks; governors adjust the rate to help curb inflation or stimulate growth, depending on their assessment of what would be best for the economy.DecoStain Womens Causal Block Low Heels Loafers Fringe Tassel Bowtie Work School Shoes B07CZ315ZP ParentDude Shoes Hey Women's Carly Coral Slip On B07B9G5VN8 ParentCarvela Women’s Lapin Np Loafers B071H32GHV ParentNEW CHILDREN GIRLS JELLY GLITTER PINK SILVERY RETRO BEACH FLIP FLOP SANDALS Toddler Size 6 - 11 B00Z3M61M6 Parent , Havaianas Unisex-Child Baby Chic Sandal White/Black/Black Baby Chic Sandal White/Black/Black B075B12GVB Parent , Versace Jeans Women's Thong Sandals Gold and Black B07BKN681N ParentWYXlink Women Sandals, Women Pinch Flat-bottomed Roman Sandals Anti Skidding Flip Flop Flat Sandals B07C8LMWNW Parent , Flip Flops Havaianas Non-Slip Beach Summer Comfortable Sandals,38 B07CYS85P2 ParentSCLOTHS summer women's flip flop slippers cross Thick bottom Square head Slope B07DL84PNN ParentCOCO-La Mexican Decorations - Flip Flops, Funny Thong Sandals, Beach Sandals B07F335Z1C Parent , SHATONG Autumn And Winter Cute Cartoon Couple Cotton Slippers B07GK4Y27D Parent , LCLrute Hot Women Summer Low Flat Heel Flip Flops Slippers Beach Sandals Shoes B07D17TF8F Parent , TT Global Summer Women Beach Sandal, 2018 Flats Summer Bohemian Sandals Beads Wild Casual Clip Toe Sandals Metal... B07D61ZFZ3 Parent , IANGL Flip Flop Ladies' Shoes Ladies White Baotou Semi Trailer Leisure Shoes B07FMFPRCC Parent , ALIKEEY New Summer Women Sandals Flat Casual Bohemian Single Shoes Soft Rhinestone Sandals Ladies Ankle Strap... B07G2VCJB8 ParentLIXIONG Portable summer Female sandals Platform shoes Simple Thick bottom Retro flat bottom, With high 4cm, 3... B07CVLNC1N Parent , Women's Rhinestone Flowered Sandals Summer Clip Toe T-Strap Ankle Strap Flip Flop Bohemian Style Flat Beach Shoes B07F2KRXL5 ParentFlip Flops HUYP Summer Fashion Personality Simple Black Slippers Beach Shoes (Size : 41) B07GNB1VJF Parent , Ipanema Women’s Art Deco Iii Fem Platform Sandals B01N6G4I7N ParentNewest Woman Summer Shoes,Fashion Cross Belt Rome Strappy Gladiator Low Flat Flip Flops Beach Wedge Sandals Shoes B07CH43B9X ParentSummer Sandals, Bestoppen Women Fashion Flat Ankel Wedge Sandals Flip Flops Ladies Casual Strappy Gladiator Low... B07C3J4BKD ParentHavaianas Flip Flops Adults Kids Brasil Logo B00M17UVK4 ParentWomen Sandals,Women's Summer Beach Post Sandals Round Peep Clip Toe Flip Flops Flat Shoes Thongs Bohemia Roman... B078YVBLGN Parent , Feifei Women's Shoes Summer Red High-Heeled 10.5CM Simple Comfortable Shallow Mouth High-Heeled Shoes Single Shoes B07CHMBTWF Parent , Laura Biagiotti Women’s Jenny Open Toe Sandals B078TZK4RZ Parent , Gentlemen/Ladies Captain of My Sail B005CHZUVK Parent Consumer first comfortability Caramel, gentleEl Charro Vintage Canvas Sneakers Tartan Green EU40 B076H9HPBR ParentHYLM Men's Flat Shoes British Floral Shoes Nightclub Casual Shoes Driving Shoes Walking Shoes B074SJ8BYQ ParentSunny&Baby Men's Business Oxford Casual Classic Simple British Style Belt Formal Shoes Abrasion Resistant B07H1JG5XQ ParentMen's Business Oxford Fashion Antiskid Wear Outsole Formal Shoes Cricket Shoes (Color : Black, Size : 5.5 UK) B07GZ2GR91 Parent
Although this rate is not the same thing as the mortgage interest rate that buyers pay when they take out on a loan on a home, movement of the Fed rate up or down can put pressure on mortgage interest rates.
“With this increase well anticipated by most markets, Keller Williams does not expect any dramatic change in the current path of mortgage rates. Rates will likely continue to slowly rise this year barring a change in the economic situation,” said Ruben Gonzalez, staff economist, Keller Williams, in a statement.
“While higher mortgage rates will likely have some downward impact on demand, housing remains very affordable by historic standards and we anticipate another year of healthy home sales despite an environment of increasing mortgage rates,” added Gonzalez.Mortgage rates don’t usually rise in tandem with the Fed’s increases. Sometimes, they even move in the opposite direction. That rate increase suggests that markets have already priced in Wednesday’s rate hike and that mortgages might not respond immediately to the Fed’s announcement. Unless and until, that is, the Fed signals that it plans to raise rates even faster than anyone expects.
Sources for this article:Fed Raises Interest Rates for Third Time Since Financial Crisis