The Fed Finally Raises Rates, Still Catches Us Off Guard

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It seems that no matter how much The Fed and news organizations talked up the event—for more than a year—the American financial markets were going to panic a little bit when Janet Yellen and friends finally hit the button and raised the Federal interest rate. Mortgage rates were one of many fields affected. They had already hit their second-highest point in two years on Monday, but they went ahead and hit their two-year high on Wednesday, ranging between 4.25 to 4.375 percent for 30-year fixed rate mortgages.

We’ve been talking about it for all of 2016, whether The Fed would raise rates. And, at one point, whether they would raise the federal rate multiple times. They didn’t, obviously, but the Federal Board showed its hand, and it looks like there could be multiple raises during 2017.

And this is what led to the more dramatic rise in mortgage rates.

As we explained last week, the hike in the Federal rate was expected and prepared for, in the hopes that its actual announcement wouldn’t trigger anything. But, of course, that didn’t go as planned.

Four times a year, the Fed’s announcements also include a forecast for the future and economic projections. These are known as “the dots” in economist lingo, the marks that link rises and falls in rates. Past dots indicated multiple rate increases during 2017 already, however yesterday’s update included an extra rise. Basically, mortgage rates were prepared for a one-off increase, however they weren’t expecting a change in the dots.

Mortgage News Daily COO Matthew Graham used an incredible metaphor for the situation in his update, and it’s one we can’t beat. He compared thappenings to The Matrix, and the Federal Board is finally starting to believe. Although the projections have always been there, now they are more assured that multiple rates can occur. In other words, more confidence means more concrete changes.

Of course, there’s still a lot up in the air, as there usually is when we’re about to begin a new Presidential administration, so we’ll see what happens during 2017. As for the next few weeks, it’s tough to imagine increases as dramatic as what we’ve seen in the last two weeks. A European Central Bank tapering announcement and a Federal interest rate hike is a tough order to live up to.

Stay tuned!