Federal Reserve Hints at Timing for Rate Hikes

Mortgage interest rates could see a significant increase as soon as this summer based on comments from the most recent Federal Reserve meeting.

The Federal Open Market Committee issued a statement Wednesday removing the word “patient” in relation to its position on interest rates, a sign that the Fed might increase its target rate as early as the second or third quarter of this year.

The Fed’s benchmark federal funds rate has been set to the range of zero to 0.25 percent since December 2008 during the financial crash. The Fed has not raised rates since the peak of the housing boom back in 2006. Since then the rock bottom Fed rate has helped keep mortgage rates near all-time lows as well.

Even though the Fed hinted at a shorter time table for increasing interest rates, it was still very cautious in its language. The last time the Fed gave a similar allusion back in Jun 2013, investors immediately reacted, causing mortgage interest rates to spike more than half a percent.

This time the Fed made it clear that nothing will happen until it sees “further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.” To keep investors from running wild again, the Fed’s statement  continued, “this change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.”

Federal Reserve Chair Janet Yellen added “just because we removed the word ‘patient’ from the statement doesn’t mean we’re going to be impatient.”

Still while the Committee noted that “economic growth has moderated somewhat,” it did say that labor market conditions have improved on “strong job gains and a lower unemployment rate.” Household spending has risen moderately due to lower gas prices. Higher rates may be here as soon as June if employment and spending keep trending upward.



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