As predicted, the Federal Reserve has just raised interest rates for the first time since December of last year, upping the target federal funds target rate by 0.25 percent (25 basis points) and signaling expectations for another three quarter-point increases by the end of 2017.

The Fed dropped the benchmark Federal Funds rate 5 full percentage points between August of 2007 and the end of 2008, a move which helped drive mortgage rates down to an all-time low of 3.31 percent in 2012. The Fed has since raised the target rate by a total of 0.5 percent.

The current average rate for a 30-year mortgage was running around 4.13 percent as of mid-last week, having jumped 56 basis points over the past month.

35 thoughts on “The Fed Institutes a Rate Hike, Signals Three More in 2017”
  1. A 1% rise in interest rates is equivalent to an extra $250 a month for the average Bay Area mortgage… Affordability will be squeezed.

    1. sounds like a $400k mortgage? I guess that can happen out in contra costa county, but hard pressed elsewhere.

      for an 800k mortgage, i’m seeing closer to 500; not a back breaker in that price range, but definitely adds up. there’s also the offset of the higher deduction from mortgage interest…while it lasts anyway

  2. Interest rates do not scale linearly with monthly payments.

    Let’s say a buyer buys home for $1m with 20% down. The buyer would take loan out for $800k.

    A 0.25% increase in interest rates equates to only $100 more per month. Not a big deal!

    FOMC is projecting a 2% increase in interest rates in the next few years. This is where the math gets interesting. A 2% interest rate increase equates to $1000/month more!

    Now the buyer can only afford a loan for $620k if he/she wants to maintain monthly payments. This represent an 18% decline in affordability!

  3. Confused renter. You are half correct. As banks calculate your ability to purchase based upon ratios, the higher the rates, the more you need to earn as a factor of more than 1 to qualify.

    1. I was merely pointing out affects of interest rates on monthly payments, not ability to qualify for a loan.

  4. Unfortunately, Janet Yellin will be in till 2018 & she is the chairperson of the Fed. Trump wants her gone & I don’t think he wants interest rates to rise. She needs to step down.

      1. No. They are appointed by the President and serve their world view/ideological needs. Presidents who want housing and stock prices to rise get what they want. Obama wanted it and Bernanke/Yellen gave it to him, wiped out the middle class due to their policies and Trump is now the result for better or worse.

          1. And when Yellen is ousted n a couple years if not earlier Trump will appoint one who does hence my point. Presidents ultimately control FED polices.

  5. Actually it’s pretty great that the economy is stable enough to raise rates. Yellin is doing a great job. I hope she renews in 2018.

    1. There are less people employed today than six years ago in the U.S. (1,154,00 to be exact) Yellin is being purely political with these rate hikes. When you travel outside the Bay Area bubble, you realize there is no economic recovery. Hillary did not tap into this reality, Sanders and Trump did.

      1. Anoncurious is exactly right. It’s so easy to imagine that the entire U.S. is doing well because the bay area is. But if you travel somewhere else and mention that the economy is good you will notice that people respond with very puzzled expressions. Growth in wealth has been extremely concentrated since the great recession. Some areas have done great, some not so much.

          1. Your CNN citation did not refute anyone’s points. But no, CNN is not fake news. You are using the sort of tactics fake news internet arguers might utilize, though.

        1. “According to data from the Bureau of Labor Statistics, in January 2008, 146,378,000 Americans 16 and over were employed, and in January 2014, 145,224,000 are employed, a difference of 1,154,000.

          91,455,000 Americans 16 or older did not participate in the nation’s labor force in January, meaning they neither held a job nor actively sought one.”

          I apologize for using the 2014 statistic, STILL, If things were as great as current political leaders claimed, there would have been a President Clinton instead of a President Trump. Sanders and Trump voters were voting out of frustration over being spewed statistics claiming the economy was great, when their own actual lives and careers were otherwise. The interest rate hikes NOW do not reflect a better economy, rather they are being “allowed” now that Obama is about to leave office.

          1. Well, so three years ago, there were 1.15 million fewer jobs than 9 years ago . . . and? We had an enormous recession in between.

            But today we’re at 6 million more jobs than the pre-recession peak. During a period when simple demographics (tens of millions of retiring baby boomers) would lead to lower employment numbers, all else being equal.

            Hillary did get the most votes by nearly 3 million. The second highest number of votes ever (after Obama). Heck, trump didn’t even get a majority of republican primary votes (and sanders fell far short of that). Your thesis doesn’t hold up.

          2. USA has added ~7.5 million jobs since Jan 2014, according to the BLS stats which anyone can lookup on their site, very easy to find (your tax rubles at work). BLS also publishes employment breakdowns by major industries (retail, construction, manufacturing, bloggers,…). Most of these have recovered to pre-recession job levels, with the notable exception of manufacturing which really got hammered in the Great Clinton Recession of ~2008-9 (HRC was in gov’t at the time and thus responsibly undeniable). Manufacturing is still down about a million jobs from before the Democrats laid waste the midwest, aka the land between the Jerseys. A switch of ~50k votes distributed just the right way in WI, MI, and PA, and we would probably be doomed for another 8 years of prosperity. Intolerable as that would be. Thankful, “for once the rich white man is in control!” (Simpsons Movie, Mr Burns).

            FTR, the US has added more than 14 million jobs in the past 6 years (End of Nov 2010 to end of Nov 2016 = 14,376,000 per BLS). Fortunately, most of the profits of the recovery have gone to the members of the next cabinet.

      2. This is simply false. There are 13 million more employed people in the U.S. than 6 years ago – 152,085,000 in 11/2016 vs. 139,044,000 in 11/2010 to be exact, per BLS stats. All the more remarkable in that the labor force has been dwindling due to baby boomer retirements until recently when it just started picking up again.

        1. @anon, which table are you looking at? I checked out the BLS table for “Employment status of the civilian noninstitutional population, 1945 to date [2015].” Looking at the “Employed”numbers, 2015 was 149 million (59.3% of the population) and 2010 was 139 million (58.5% of the population).

          My concern with the new jobs being created right now across the US are the actual quality of those jobs; what type of jobs are they and can those jobs support paying a higher price for all kinds of things, including a place to live.

        2. You’re right, Anon.

          Watch how quickly Foxnews pivots from ‘the economy is terrible due to Obama’ to ‘the economy is great due to Trump’

    2. No worries Dandy. She will be gone. Especially after raising the rates 3x in 2017. That’s not the way to “keep your job”, that is the way “out the door”.

      1. That is not how the process works. Yellen serves a term, so can’t simply be fired because the president disagrees with her. The system was designed specifically to avoid political interference with the process.

          1. He knows and already stated via campaign staff that she can serve out her term but will not be renewed.

  6. With any luck, Yellen understands the garbage fire of kleptocrats that is moving into the White House, raises short terms rates not only the projected 3 in 2017, but 4, and tosses in a fifth in January 2018 before she’s out the door in Feb 2018. And helps trigger a hard recession for Trump to have to deal with, just as the Dumpster Fire Party has to start planning for the mid-terms.

    Janet Yellen Kenobi, you’re our only hope.

    1. If we were really lucky we wouldn’t be having these (virtual) discussions in the first place. Then again , there were actually people who wanted (Lawrence) Summers, so maybe it’s not so much we’re not lucky as much as we’ve just used up our quota for a while.

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