The FED Comments on Rate Hikes: How Will That Affect Housing?

 

 

 

 

In a recent speech by Kansas City Fed President and CEO Esther George, she indicated that the volatility in financial markets, as such, should not prevent rate hikes from occurring in the future. She indicated that the Fed should focus on the fundamentals of the economy, such as inflation, unemployment and salary levels.


She acknowledged some of the economic "headwinds": low oil prices, reduced exports due to the strong dollar, lower orders from other countries also due to the strong dollar. Also, she believes that "the general health of households’ financial situations is much improved since the financial crisis.”
According to Vice Chairman Stanley Fischer,

“the federal funds rate is likely to remain, for some time, below the levels that we expect to prevail in the longer run.” So it seems that the Fed believes rates will remain relatively low, some increases are still possible. Again, Esther George states that "pickup in economic growth, steady job gains and modestly higher core rates of inflation will warrant further increases.”

The extent of rate increases will flow into mortgage rates and negatively affect housing prices. It seems just a matter of when and how much.

Read the full text of Esther George speech of Feb. 2, 2016 here.

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