With the November meeting of the Federal Reserve not long behind us, people are already looking to the possibilities of the December meeting, scheduled for December 13-14.
Looking Back: 2015 Rate Hike
With America rebuilding from the Great Recession, the Fed has kept interest rates low and stable. It put interest rates near zero in December 2008 to stimulate the economy and help the falling housing market, and though 12 million jobs have been created since the Great Recession began, the Fed held off raising interest rates – until December 2015, when the rate increased by .25%. The 2015 rate hike was the first since June 2006, almost a decade before.
Raising the interest rate in 2015 signaled confidence in the economy by the Fed. The central bank raises interest rates only when it feels the economy can withstand higher borrowing costs, and with unemployment rates at less than half what they were at the beginning of the recession, it makes sense that higher borrowing rates are more manageable.
While the rate hike did change some things in our economy – like increasing the value of the dollar and creating volatility in the stock market – it did not have much impact on mortgage rates. In fact, mortgage rates have dropped more than .50% since the December 2015 rate hike.
Are record low mortgage rates creating a buyer’s market? Find out if now is the time to take advantage of historically low rates.
Looking Forward: 2016 Rate Hike
Since its 2015 raise, the Fed has made it clear it plans to gradually increase interest rates, and with the growing economy and increasing inflation, it seems clear that a hike is near.
In fact, in September, 10 out of the 17 Fed members predicted an interest rate hike by the end of the year. When the Fed declined to raise interest rates in October, all eyes fell on December.
However, the economy isn’t exactly where the Fed would like it to be before a rate increase. When considering a rate increase, the Fed looks to two objectives: reaching full employment and achieving an inflation rate of two percent.
The US employment rate has been strong in 2016, but inflation remains at 1.6 percent, short of the Fed’s ideal rate. In spite of this number, interviews with Fed members and market research have continued to point to a December rate hike.
While the interviews and market research have pointed to the rate hike, the results of the 2016 election have recently changed the minds of many experts. President-elect Donald Trump’s policies focus on change, and change often creates instability in the market. Because experts no longer know what to expect in the coming months, it is less likely that the Fed will increase the interest rate at their December meeting.
Still, some experts believe failing to raise the interest rate in December would cause the Fed to lose credibility, so a December rate hike remains uncertain. As of November 9, just a day after the election, Bloomberg had the chances of an increase at 47%, but with more than a month between the election and the next Federal Reserve meeting, there’s still time for the market to provide more information for or against a hike.
What It Means
Whether the rate increase happens in December or not, mortgage rates will not change immediately. In fact, mortgage rates already rose slightly in October in expectation of the December raise, and it’s unlikely they’ll continue increasing with market uncertainty. In spite of the raise (or any other slight raises to come), mortgage rates still remain quite low by historical standards. It’s still a great time to refinance or to look for a new home, but now is the time to act.
With record low interest rates inspiring confidence in the real estate market, it may be an ideal time to refinance your current mortgage loan.
If you live in or plan to relocate to the Gainesville area, contact Chris Doering Mortgage to continue the discussion on interest rates and what they mean for you. Our team uses knowledge of the market and industry trends to help plan your next steps.