Citing Strong Job Market and Improving Economy, Fed Hikes


As was expected, the Federal Reserve on Wednesday raised interest rates by 0.25%, bringing the target range for the federal funds rate to 2.0% to 2.25%.

In its statement, the Federal Open Market Committee cites that the labor market is improving and that “economic activity has been rising at a strong rate.”

“Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low,” the FOMC says in its statement. “Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2%. Indicators of longer-term inflation expectations are little changed, on balance.”

The dot plot shows that 12 of the 16 FOMC participants predict one more hike before the year ends, likely in December.

For mortgage lenders, the main concern is not so much whether the Fed hikes will result in higher mortgage interest rates, rather, what the impact will be on the stock market and the overall economy. If the products and services consumers use regularly become more expensive, if rates go up on credit cards and other short-term variable lending products, and if stock prices fall as a result of a hike, then it could erode consumers’ purchase power and impact the housing market.

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