As The Ball Drops The Fed Rate Rises

Posted By Doug Gungor @ Jan 7th 2016 12:00pm In: Self Help

On December 16, the Federal Reserve raised its key interest rate from a range of 0-0.25% to 0.25-0.50%. The news wasn't earth-shattering, as this was long expected by Fed watchers based on continuing strength in the economy. Reading the business news on the day of the announcement and shortly thereafter, the prevailing attitude among pundits across all markets is that it will have a gradual, long-term impact on many things, from savings (better, since banks can start offering higher interest rates on savings accounts) to mortgage rates.

 

Banks aren't going to immediately start handing out high-yielding money markets like Willy Wonka in a good mood. By the same token, mortgage rates aren't going to leap from 3.95-4.10%, which they are as of this writing, to a number that only Einstein could comprehend. This reality was factored into the Fed's decision making, again, based on all of the economic data that showed that the economy was not only strong enough to handle, but would actually benefit from, an incremental increase – incremental, because those same Fed watchers note that there will be a similar move or moves in 2016.

 

In terms of mortgage rates, here is an interesting figure: 6.41%, which was the annual average for mortgages in 2006. Why do we share this? By way of comparison in terms of how low today's mortgage rates are against their historical peers. Currently, mortgage rates are well below that number and, while they have nowhere to go but up, that rise, to repeat the word, will be gradual.


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