After their two-day meeting concluded on February 1, the Fed decided to keep their rate the same.
While they decided to keep rates the same, they did express optimism about the current market. This will more than likely lead to at least one rate hike in 2017.
The Fed decided to keep their target rate of ½ to ¾ a percent, a range they decided to target during their last meeting of 2016. Because this is the first meeting since they raised rates, a rate hike wasn’t expected.
But the rhetoric of the Federal Open Market Committee’s (FOMC) press release show that they are confident in the strength of the market.
According to the Fed, unemployment is holding low while job growth is continuing to grow at a healthy rate. They have also wanted to see inflation rise closer to two percent, and while inflation has been lower than desired, it is rising toward that benchmark set by the Fed.
The decision to keep rates the same might not seem like big news, but it could have major effects on mortgage rates. Rates had been rising steadily for a while until they suddenly dropped last week. By staying the same, the Fed’s rate could end up keeping mortgage rates low – for the time being.
Mortgage rates will probably fluctuate around their current levels until more news comes out. Because the economy is still adapting to President Trump, any major events can shift rates. But recent news on the Fed shouldn’t deter home buyers from locking in on current rates.
Why The Fed Didn’t Raise Rates
The Federal Open Market Committee (FOMC) is in charge of conducting monetary policy in the United States. They meet roughly every six weeks, and their most recent meeting was scheduled for January 31 – February 1.
One tool the Fed uses to conduct monetary policy is the federal funds rate. This is their version of interest rates, and it tends to set interest rates nationwide.
The Fed decides to change their rate for a number of reasons. Currently, they have been raising it to help spur and continue economic growth in the nation. When the economy is doing poorly, they tend to lower rates.
According to the Fed, “job gains remained solid and the unemployment rate stayed near its recent low,” while spending also rose to higher levels.
The general consensus in the Fed is that the economy is growing, and they want to help it grow without putting too much pressure on by rising rates too quickly.
Also in their press release, the Fed mentioned that “economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.” In other words, they will continue to raise the rate as the economy grows.
Fortunately for home buyers, they can take advantage of the growing economy without having to deal with quickly-rising interest rates. At the same time, home prices are continuing to rise, and there is economic uncertainty in the future because of the new president.
Rates Set To Rise In 2017
If the economy continues down its current path, both the Fed’s rate and mortgage rates are bound to rise throughout the year.
The Fed originally planned to raise rates up to three times in 2017, but it might be more likely that they only raise their rate twice. Still, they have only raised their rate twice in the few years. This would have huge economic implications.
One consequence would be rising mortgage rates. Mortgage rates are tied to multiple economic factors, but all types of interest rates are tied to the federal funds rate.
Also, mortgage rates can change each day and throughout the day. If there is any major economic news, mortgage rates could react instantly.
While there’s no guaranteeing that rates will rise or fall over the coming weeks or months, home buyers can lock in on current rates. That guarantees relatively low rates, even though they are slightly higher than last year’s historic lows.
If anything, home buyers should be happy that the Fed is waiting to raise their rate. The economy is doing fine, and mortgage rates are almost playing catch-up because the Fed is holding their rates low.
Rates change throughout the day, and they’ll continue to change each day until the next Fed meeting. Those looking to take advantage of relatively low rates may want to consider locking in on current rates.