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Chrisman's Corner: Interest Rates & Employment

Last week, the Federal Reserve Open Market Committee (FOMC), headed up by Chairperson Janet Yellen, raised short term rates. It was no surprise, especially when November’s strong employment report removed most of the doubts about whether the economy is strong enough for the Fed to begin to normalize interest rates at the December 16th FOMC meeting. Hoorah.

 What does it mean for JMAC’s brokers and their clients? While many people speculated that the rate change would happen in September, the FOMC decided it would be more meaningful to surprise us with a Christmas gift instead and to see the smiles on our faces.

 Non-farm employment has steadily increased, which is a huge factor for short-term interest rates because the FOMC has continually said they would like to see stronger employment for a more stable economy before the Fed Governors make any changes. There was a sizable increase in average hourly earnings to go along with an increase in the number of hours worked.

 JMAC’s capital markets staff and brokers are also noticing much less concern about the downside risks to the economy. The payback for the buildup in inventories during the first half of the year appears to have been largely confined to the third quarter and now seems to be behind us. This trend suggests a strong economy going forward, which the FOMC has stated they want and was indeed incorporated into the increase in rates.

This is all great news and more than enough for an interest rate hike in December. But our experienced brokers know that the Fed does not set mortgage rates – the basic forces of supply and demand do. And although no one can predict the future, many believe that the Fed’s move may not move mortgage rates at all. And so far that is the case!