The Fed Raises Rates as the Economy Continues to Show Strength

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The Federal Reserve has raised the Prime Rate (Fed Funds Rate +3%) for the third time this year. The move was widely expected by markets and there was little change to mortgage interest rates overnight while the DOW has seen an increase this morning.

As we have discussed previously, changes to the Fed Funds Rate has a direct impact on credit cards, student loan debt and most home equity lines of credit. While Federal Reserve policy can have some influence on mortgage rates, they are typically swayed more by inflation, changes in economic growth and the Bond Market.

Despite very solid economic growth, inflation remains low and the Fed noted as much in their release. They do anticipate inflation coming up to the 2% target over the “medium term” which would align with their plans for future rate hikes next year. If the labor market pressures do lead to increased wages, in turn raising inflation, we are likely to not only see more Fed rate hikes next year, but also rising interest rates.

While we can’t predict what the future will hold, in markets like this it is typically a good idea to lock your interest rate.