Federal Reserve raised the benchmark interest rate by a quarter percent and
signaled it may hike rates three times next year with the strengthening economy
and possible expansionary economic
policies of the Trump administration.
Federal Open Market Committee (FOMC) raised the federal funds rate
to a range between 0.5 percent to 0.75 percent. This was only the second rate increase in a decade and the first since last December.
Reserve Chair Janet Yellen said the committee members were optimistic about the
economy, although she acknowledged that “a cloud of uncertainty” surrounds the
impact of the new administration’s economic policies. The Fed's “dot plot” that charts the likely course of
the federal funds rate now signals potentially three hikes
next year, which is one more than the markets anticipated.
Fed's policy makers have revised down the projection for unemployment to 4.5 percent, which is
lower than the long-run average. Also, the Fed now expects slightly higher
gross domestic product growth; however, inflation remains below the target of 2
percent, and business investment has remained weak.
Fed’s action only directly affects the overnight bank borrowing rate, and short-term
rates. Yellen said households and firms would see “very modest changes from
[the rate hike] is a vote of confidence in the economy,” Yellen said during the news conference.
economists are predicting that the 30-year fixed rate will end the year next
year in the range of 4.5 percent to 5 percent. Fannie Mae Chief Economist Doug
Duncan said the “dot
plot” projections seem to indicate a more hawkish stance, but
he noted that it once also predicted four rate
increases in 2016.
“Much of the upbeat
financial data, including the jumps in interest rates, the dollar, and equity
prices, are largely due to the anticipation of stronger economic growth from
suggested fiscal stimulus and deregulation from the new administration and
Congress,” Duncan said.
“Whether that bullish
view will come to fruition hinges on the priorities of the incoming president
and the willingness of Congress, as candidate Trump also campaigned on
anti-growth trade policy,” Duncan
continued. “The Fed will likely be in wait-and-see mode given this substantial
markets widely expected a rate increase in December.
“I didn’t see any big surprises,” said Kevin Finkel,
executive vice president of Resource Real Estate, a real estate investment
trust. “We know that the economy is strengthening. In a market like this, we
know that rates are going to go up.”
Scotsman Guide News that rising rates and strengthening economy could
benefit owners of apartment buildings. That’s because rising rates will make
homebuying more expensive, and more people may choose to rent. He also said
the prospective tenants may have more money in their pocket as wages rise,
giving landlords more leverage to raise rents.
“We may be entering into a little bit more of an
inflationary period, and that is part of being in a stronger economy, “ Finkel said. “Again, that is good
Mortgage originators who specialize in refinances could be
in for a rough ride next year, however. Brian Koss, executive vice president at
the Mortgage Network, said forecasts that predict refinancing volume could plunge by 40 percent next year are likely to come to pass. At least initially,
however, the home-purchase market could get a boost, if people believe rates
“This move should continue to get some people off the
fence,” Koss told Scotsman Guide News. “That is one reason to jump back into
the game a little bit and see what is out there. I think it will be a decent
first quarter because of the threat of rates being higher.”