Magazine article Mortgage Banking

The Rate Hike

Magazine article Mortgage Banking

The Rate Hike

Article excerpt

Well, it finally happened. The Federal Reserve's Federal Open Market Committee (FOMC) finally replaced rhetoric with action on Dec. 16 when it told the public it would actually begin raising interest rates. And while I wouldn't say it was a non-event, let's just say it was widely anticipated.

Mike Fratantoni, chief economist for the Mortgage Bankers Association (MBA), issued a statement the day the Fed said it would start raising the Federal Funds Rate. It basically says that MBA had already baked a rate hike into its 2016 forecast (with the implication being, what took you so long?).

Here's how Fratantoni put it: "MBA has been projecting a rate increase all year and we have factored rising mortgage rates into our 2016 mortgage finance forecast. Due to the strength of the economy, we still project 10 percent growth in the [home] purchase market in 2016, despite gradually increasing rates."

As many economic commentators have pointed out, the rate hike comes because the economy has shown steady signs of strength. So the small, bitter pill of a rate hike comes against the backdrop of a lot of otherwise good news about the economy. Fratantoni underscored that point: "Today's vote signaled confidence in the future growth of the economy. The unemployment rate is at 5 percent, employment is growing, and core [Consumer Price Index] inflation is running at 2 percent. By any measure, the economy is close to meeting the Fed's targets and it is time to raise rates above zero. …

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