The Federal Reserve just hiked rates-so now what?


Recent articles in Inman and the New York Times discussed the Federal Reserve’s interest rate action yesterday. The Federal Reserve raised rates at its December meeting by 0.25 percent.

Here are a few things you need to know.

Mortgage rates did rise after the hike yesterday. No-fee 30-fixed mortgages are just barely holding on to 4.25 percent, going higher.

The Fed estimates two more hikes next year, possibly three.

In general, movement of the Fed’s rate does not have a large, direct impact on long-term mortgage rates. But when the Fed’s rate goes up, banks find ways to pass their higher borrowing costs along to consumers.

And because long-term mortgage rates are set in stone, they also factor in the anticipation of future rate increases. That’s part of why mortgage rates have been shooting up in recent months: The Fed has suggested that interest rates are likely to continue rising for years.

The Fed  will continue to hike until it either slows the U.S. economy to growth well under 2 percent and sees the unemployment rate rising to 5 percent or a little more, or (by accident) causes a recession. This could put some headwinds into the Real Estate market.

The jump in all rates on the morning after the election partly reflects Donald Trump‘s intentions to stimulate the economy, and the financial markets are anticipating this will result in inflation.  The Fed’s decision will likely affect the cost of housing, cars, student loans and even the interest on  credit cards — though not all necessarily right away. And when the Fed raises rates, all sorts of other expenses eventually tick up.

While we don’t know exactly what the Trump administration will do, the fact that Congress and the President are both led by Republicans means some (hopefully good) action will result. It is likely the new administration will focus on reducing regulation and adding to productivity-which should help the real estate market.