Gauging the Impact of the Fed's Rate Hikes

Ivan Schwartz
March 21, 2017

Interpreting which Federal Reserve official represents which "dot" on the central bank's closely watched dot plot of interest rate forecasts is something of a parlor game. S. GDP growth fell to 1.6% in 2016 and the recent data for early 2017 imply that first-quarter 2017 growth could come in lower still. The unemployment rate was little changed at 4.7 percent. "We are still coming up short on our inflation target, and the job market continues to strengthen, suggesting that slack remains".

This means, though, that consumers who have credit card card or adjustable-rate mortgages or home equity lines of credit are those who will be most likely hit by the rate hike.

This might seem daunting, at first, but NerdWallet mortgage analyst Tim Manni confides: "For consumers now shopping for a mortgage to purchase a property or refinance an existing loan, shouldn't feel like a real shock to the system since the rate move has already been "baked" into the market".

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Although there was a tightening of monetary policy, what failed to eventuate was a hawkish speech from the Fed President Janet Yellen, which left investors guessing, how many more rate hikes will there be this year? Over the last 12 months, the all items index rose 2.7 percent before seasonal adjustment. The Fed's dovish language explains the market's muted reaction to its latest policy rate hike. "Yes, many existing homeowners will have a financial disincentive to sell because they would lose their lower than prevailing mortgage rates in doing so, the so-called rate lock-in effect".

On the corporate front, US-listed shares in Deutsche Bank were down 3.42% after the German lender said it will raise €8bn by selling its shares at a 35% discount to last week's closing price as it looks to shore up its finances. If you are looking to refinance, you should be able to find five-year variable rates in the prime minus 0.45% range (2.25% today), depending on the terms and conditions that are important to you.

The Minneapolis Fed chief cast the sole dissent when the Federal Open Market Committee voted on March 15 to raise rates.

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