For the second time in nearly a decade, the Federal Reserve raised short-term interest rate, this time by .25 percent. The move was widely expected, as the futures markets had predicted in the last few weeks that there was a 100 percent probability that the Fed would raise rates. The bond market was not happy about Fed Chair Janet Yellen’s comments after the move.
Bonds were caught off guard because the Fed changed their forecast for raising rates in 2017 from two increase to three. Although Yellen stated that any future moves would be data dependent, the market was caught off guard, feeling that possibly the Fed was behind the curve.
I don’t believe it for a minute. Last year, when the Fed raised rates in December it stated that it was going to raise rates four times in 2016 and there was only one. Why would they say that they are going to increase rates three times instead of two times knowing their track record from 2016. The Fed stated that all their economic targets were in lines with their expectations, which included inflation and employment, so why would they change their expectations unless they were worried about something?
Since the elections, the stock market is up approximately 5 percent and I feel that the Fed thought that the rise in the stock market was climbing too high too quickly. I believe that they Fed wanted to slow that rise for fear of another bubble.
This change in their stance caused mortgage rates to move up .125 percent across the board. Mortgage rate have skyrocketed since the election. The 30-year was at approximately 3.55 percent and now it stands at 4.375 percent. This is a whooping increase in such a short period of time.
2017 will potentially be a wild ride for rates as well as the financial markets. Put your seatbelts on and get ready for the ride.
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