Fed Leaves Rates Alone But Hints at Future Hikes
August 2, 2018
The Federal Reserve decided Wednesday to hold off on raising its short-term interest rates. But it hinted that it likely will deliver its third interest rate increase of the year at its next meeting in late September. The Fed’s key rate does not have a direct impact on mortgage rates, but it usually influences them.
“Economic activity has been rising at a strong rate,” the Fed’s statement read. Economic output rose at a 4.1 percent annual rate in the second quarter, which is the highest three-month increase since 2014.
In June, the Fed had raised its benchmark rate to a range between 1.75 percent and 2 percent. On Wednesday, it voted unanimously to keep the rate at 2 percent. The Fed has hinted at two more increases before the end of 2018.
“The cost of borrowing has increased, whether you are dealing with mortgage loans, auto loans, student loans, or credit cards,” Ric Edelman, co-founder and executive chairman of Edelman Financial Services, told CNBC. “It’s more expensive now than it was a month ago and it’s projected that it will get higher still.”
The economy, the Fed, and inflation all have an influence over long-term fixed-rate mortgages. Mortgage rates have already been on the rise, with the 30-year fixed-rate mortgage averaging about 4.71 percent, up from 4.09 percent in 2015, CNBC reports.
Those with adjustable-rate mortgages or home equity lines of credit will also be affected. Greg McBride, chief financial analyst at Bankrate, recommends those with ARMs to refinance into a fixed-rate mortgage that will likely offer a lower rate than what an ARM will adjust to later this year. Homeowners with HELOCs, McBride adds, may want to ask their lender to freeze the interest rate on their outstanding balance or consider refinancing into a fixed-rate home equity loan (note that there are caps on how much owners can access).
“The Fed Didn’t Raise Rates. How to Prepare for the Next Hike,” CNBC (Aug. 1, 2018) and “Federal Reserve Holds Rates Steady, Says Economy Is Strong,” The Wall Street Journal (Aug. 1, 2018) [Log-in required.]
Updated: July 22, 2019