Interest Rates are going up

The interest rates have been at all time lows for many years. So long that we are actually getting used to them being so low. Not anymore, the rates are due to go up in the next two weeks and that could make a big chunk on your mortgage payment.

If you were on the fence, now is time to act. I just locked my own rate at 3.375%, this is an amazing rate and I don’t think they will ever be that low again. Get off the fence!

See the Article below from the NY Times regarding the hike.


Yellen Signals Fed on Track to Raise Rates in December

Fed chief says gains in labor market bolster her confidence that inflation will return to 2%

Federal Reserve Chairwoman  Janet Yellen signaled she’s ready to raise short-term interest rates this month barring a surprise that shakes her confidence in the economy.

She also suggested she sees dissension within her ranks, which could complicate her moves toward ending seven years of near-zero rates.

“I don’t need unanimity. I think we have to tolerate some dissent,” Ms. Yellen said Wednesday, in answer to a question after delivering a speech on the economic outlook. “I wouldn’t try to stifle dissents, and I would even expect some at critical junctures.”

In addition to some regional Fed bank presidents, two Washington-based Fed governors have expressed hesitance about raising rates, though the consensus appears to be moving against them.

“Absent information that drastically changes the economic picture and outlook, I feel the case for liftoff is compelling,” Atlanta Fed President Dennis Lockhart said in a speech in Fort Lauderdale, Fla., on Wednesday.

The Fed, which holds its next policy meeting Dec. 15-16, has said it would raise its benchmark federal-funds rate from near zero after it saw further improvement in the job market and became reasonably confident inflation will rise toward its 2% target.

Ms. Yellen on Wednesday described an economic backdrop fitting that description, a strong hint she is leaning toward lifting rates soon. She also warned that delaying a rate increase could hurt the economy, for instance by inducing risk-taking among investors that could destabilize the financial system.

“On balance, economic and financial information received since our October meeting has been consistent with our expectations of continued improvement in the labor market,” Ms. Yellen said in her speech. “Continuing improvement in the labor market helps strengthen confidence that inflation will move back to our 2% objective over the medium term.”

The latest economic data underscore Ms. Yellen’s optimism.

On Wednesday, the Labor Department reported inflation-adjusted hourly compensation for workers in the nonfarm business sector rose 3.4% in the third quarter compared with the same quarter a year ago, the second-largest jump since the third quarter of 2009. That comes after hourly compensation grew 3.3% in the second quarter over the same quarter of 2014.

Other wage measures have also shown improvement. Average hourly earnings of private-sector employees were 2.5% higher in October than a year before, the largest annual increase since July 2009, according to a separate Labor Department report.

“What the rest of the industry is seeing, what we are seeing as well, is just general wage-rate pressure,” Doug Benn, chief financial officer at the Cheesecake Factory Inc. chain of restaurants, told analysts in a conference call last month. “Being able to be fully staffed in an environment where there is an alternative—many alternatives for workers to go other places—it’s been a challenge.”

Still, inflation, by the Fed’s preferred measure, has run below its target for 42 consecutive months.

The Labor Department on Friday will deliver a report on November job growth and unemployment, a key final piece of data Fed officials will look at before making their rate decision. At this point, it would likely take a big disappointment in the report to give them pause.

Futures markets put a 75% probability on a quarter-percentage-point rate increase at the Fed’s meeting this month, according to the Chicago Mercantile Exchange.

Ms. Yellen’s comments, including a warning about the dangers of waiting too long to raise rates, did little to diminish those expectations.

“Were the [Fed] to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals,” she said. “Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and thus undermine financial stability.”

Stocks fell after her comments. The Dow Jones Industrial Average closed down 158.67 points, or 0.9%, at 17729.68.

The Fed lowered short-term rates to near zero in December 2008 during the financial crisis, and has held them there since to support the economy through the recession and fitful recovery.

Having convinced much of the investing public that a rate increase is coming this month, Fed officials are now trying to hammer a message that they will move gradually and cautiously after that first move.

Ms. Yellen pointed to the low level of the “neutral” fed-funds rate. This is a theoretical rate that would be compatible in normal times with consistent low U.S. unemployment and steady inflation.

Before the financial crisis, this neutral rate was widely estimated to be near 4%. Adjusted for inflation that would be close to 2%.

Since the crisis, Ms. Yellen noted, the neutral rate adjusted for inflation has been below zero. In other words, the economy hasn’t been able to bear the higher rates seen in normal times because it’s been too fragile.

Ms. Yellen said she expects the neutral rate to move up slowly as the economy strengthens, but she isn’t sure if it will rise or how much. This means the Fed will move gradually and tentatively as it proceeds, to find the economy’s new balance point.

As interest rates are expected to rise, impacting mortgage payments, it’s crucial to act quickly if you’re considering a mortgage. With rates like 3.375% potentially not being available again, understanding how these changes affect your finances is essential. A compound interest calculator can be an invaluable resource in this scenario, helping you calculate the long-term implications of interest rate changes o

On this front, Ms. Yellen appears to have common ground with potential dissenters. Fed governor Lael Brainard, who has expressed reservations about raising rates, dedicated a speech Tuesday to the low level of the neutral fed funds rate.

“The new normal is likely to be characterized by a lower level of interest rates than in the decades preceding the crisis, which counsels a cautious and gradual approach to adjusting monetary policy,” Ms. Brainard said.

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