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FOMC Convenes: What Could Happen to Mortgage Rates

On Wednesday the Federal Open Market Committee (FOMC) is set to finish its June meeting, and it is widely expected that they will raise interest rates in order to stabilize the economy, despite inflation holding at around 2 percent. In May, when they last met, members of the board chose to keep interest rates at their current level.

The Economist is predicting that the Fed will raise the benchmark interest rate a quarter of a percentage point, and is also reporting that FedWatch, a monetary policy forecast estimation tool, is putting the probability of an increase at 91 percent.

While unemployment numbers are the lowest its been since early 2000s—4.3 percent—there are other factors that The Economist says point to a hike in rates. Wage growth has slowed, even though it should be rising with low unemployment numbers. In that regard, inflation should be going up as well, but it is not.

If the Fed decides to raise interest rates, what does that mean for the housing market and mortgage rates? Mark Fleming, Chief Economist, at First American believes nothing will happen.

“The truth is,” he writes, “changes to short-term interest rates, like the Federal Funds rate, tend to have very little influence on mortgage rates. That’s because mortgage rates, particularly the very popular 30-year, fixed-rate mortgage, are benchmarked to the 10-year Treasury bond.” For something as small as a quarter of a percentage point, he estimates the yield curve will flatten rather than spike.

There are some that see a possibility that FOMC will keep interest levels at their current level. Bryan Rich, CEO of Logic Fund Management and staff writer at Forbes, thinks oil prices, which are hovering above $50 a barrel, and show no sign of dropping below that, will be a contributing factor to the Fed’s decision. Combined with falling yields, Rich sees a recipe for a big surprise when Janet Yellen holds her press conference and reveals the FOMC’s decision.

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