Feds raise rates .25% today – banks follow with prime rate increase
As was very much anticipated, the Feds did go ahead and raise rates .25% today. The vote was 10-0 in favor of the rate hike, with 2 members of the FOMC board abstaining from voting.
According to a CNBC report, “The new target will go from 0 percent to 0.25 percent to 0.25 percent to 0.5 percent. Most members expect the new rate to coalesce around 0.375 percent before the next hike, according to a chart showing individual member expectations.”
Due to the recent recession, the Feds had moved the overnight lending rate to 0% exactly 7 years ago today, on December 16, 2009. This is the first rate hike since that time.
Janet Yellen also said that the Fed policy will remain accommodating, and the board will watch for further improvements in the labor market and the target 2% inflation rate before making additional rate increases. “FOMC officials made it excessively clear in post-meeting documents that the pace of increases will be gradual and dependent on the quality of economic data.”
“However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”
The statement also added this sentence to ensure markets that the pace will be slow: “The committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen.”
Wall Street loved that the wait and uncertainty is finally over and the stock market rallied big time today after hearing the decision. All indices were up at least 1% as of close of the market this afternoon.
The yield on the 10 year treasury note (which mortgage rates are closely tied to) did rise from about 2.08% at the open of trading today, to close at 2.24%. This is still very much in the range that it has been trading at for months now, so no real changes to mortgage rates as of the close of the market today. However, the major banks have already announced a .25% increase in their prime rates which could cause at least a .25% increase in mortgage rates just about immediately.
It is anticipated that there will be as many as 3 more rate increases in 2016.