Rates Holding Steady But Fed Actions Points to Possible Hike in December

The Federal Reserve kept the benchmark rate unchanged on Wednesday, September 28th in a divided vote that could mean a interest rate hike before 2016 comes to a close.

“The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives,” the Federal Open Market Committee (FOMC) released in statement. “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

“Our decision does not reflect a lack of confidence in the economy,” Fed Chair Janet Yellen said in a press conference, later adding, “We’re generally pleased with how the U.S. economy is doing.”

This action was expected by analysts as policymakers stood their ground the past three months despite initially forecasting four hikes during the year. The federal funds rate informs the trajectory of mortgage rates, which remain at historic lows.

Chances of a hike improved after Yellen made note of the economy’s supportive environment during a speech in August, but softening indicators proved otherwise: the U.S. Bureau of Labor Statistics reported modest employment data this month, and housing starts came in less than anticipated in August, among other factors. Still, household wealth grew over $1 trillion in the second quarter of this year (with owner equity at its highest in a decade), and household spending has picked up significantly.

TransUnion researchers recently found some nine million credit-active consumers would experience “payment shock” if the federal funds rate rose 0.25 percent—the majority of all credit-active consumers, however, would see monthly payments increase a paltry $6.45.

If you would like to take advantage of the still historically low mortgage rates to either refinance or to purchase a home, please contact me.

Michelle Paxton Sr. Loan Officer C: 408-891-0090 F: 925-265-0202 E: mpaxton@guildmortgage.net