The Federal Reserve carried out its first hike of 2018 on Wednesday, increasing interest rates one-quarter percentage point and leaving open the possibility of more raises this year. The action was anticipated by the market, which has been on a robust—and, at times, rollercoaster—run.
“In view of realized and expected labor market conditions and inflation, the [Federal Open Market] Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent,” according to a Fed statement. “The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.”
The decision is the first under Fed Chair Jerome Powell, and follows growing wages and a heaping of jobs introduced to the labor pool.
Analysts are divided on exactly how many increases will occur this year. Many expect the Fed to limit it at three; others, accounting for inflation pressures and the recent stimulus, are entertaining the idea of four.
What does the hike mean for mortgage rates? Borrowing costs can grow. According to Freddie Mac, the average 30-year, fixed mortgage rate last week was 4.44 percent—a dip from the prior week, but nonetheless on a tear. Affordability has lessened as a result.
“The tight labor market will hurry-along the Fed to raise rates,” Yun said. “Housing costs are also rising solidly and contributing to faster inflation. The one thing that could slow the pace of rate increases would be to tame housing costs through an increased supply of new homes. Not only will more home construction lead to a slower pace of rate hikes, it will also lead to faster economic growth. Let’s put greater focus on boosting home construction.”
The Fed will meet next in June.
Source: Suzanne De Vita, RISMedia.com