On Wednesday afternoon, the Federal Reserve made the announcement that the target rate for federal funds will be increased by 25 basis points. This announcement by the Fed has been much anticipated as it hasn’t been increased since 2006, when they lowered it.
“The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective,” the Federal Open Market Committee said in its statement Wednesday. “Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”
This increase in the rates had been expected for quite some time as the FOMC had meetings in both September and October, but failed to made the decision until now. This decision will raise short-term interest rates, and came after there had been many indicators of inflation pressures, as well as current labor market conditions. In November, the Bureau of Labor Statistics reported that 211,000 jobs were added, and that the unemployment rate was down to 5%.
Auction.com Executive Vice President Rick Sharga is predicting that the increase will be beneficial and helpful to the housing market, allowing it to grow.
“One of the biggest headwinds in the housing market today is tight credit,” Sharga said. “There’s virtually no non-agency lending…nothing outside of QM, other than jumbo loans to rich borrowers the banks want to grab as customers for other services. Higher interest rates would actually allow for loans to be priced in a way that accommodated some degree of risk.”
Dave Gorman, Regional Sales Executive at Bank of America, also said that the rate increase not have too much of an impact on homebuyers.
Gorman stated: “(This should) reflect a strengthening economy, better job outlook, rising wages, increased consumer confidence—factors that help increase demand for housing. We understand the natural concern among consumers, particularly prospective homebuyers, about slightly higher borrowing costs. With rates already at such low levels, incremental increases shouldn’t take average mortgage rates into the territory we’ve seen them in the past for some time.”
This news doesn’t come as a surprise to most people, as some experts had been saying this move has been overdue. But most say there should not make too much of an impact.