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Chrisman's Corner: Borrowers are Aware of Low Interest Rates – Again

The vote by the United Kingdom to exit the European Union in late June reminded borrowers, and JMAC’s brokers, that, regardless of what happens in the United States, our rates continue to be influenced by what happens overseas. Still, what happens here in this country does influence mortgage rates.

No one thought that the Federal Open Market Committee would raise rates in June, or at its meeting in late July. The Fed Governors, in their speeches, and Janet Yellen have continually confirmed that forecast, pretty much saying that any fed funds interest rate hike will be put on hold until at least later in 2016, but there would need to be a strong economic and labor showing for that to happen. 

Recent economic data in the U.S. is decent…but not strong enough to raise rates. The first and second quarter real GDP growth is positive but lower than expected and the 1st quarter revised downward. Consumer spending is solid, but not setting the world on fire. 

But as JMAC’s brokers know, what has caused any interest rate hikes to be put on hold was the May employment report, and then the Brexit vote, and then the June employment numbers. Job growth is positive, but not stellar. Productivity growth has been very weak starting a few months ago; both the May ISM Manufacturing Index and the May ISM Non-Manufacturing Index showed employment sub-indexes below 50, indicating a contraction in employment for the month.

Through all of this we are reminded that we must be careful what we wish for. Low rates are typically an indication of either a slowdown somewhere in the world or uncertainty. And if this spreads to our economy, the last thing our financial sector needs is another slow down.

No one has a crystal ball, but given the turmoil caused by European events the low interest rate environment will continue into the foreseeable future – and that is good for JMAC’s brokers’ clients!