Smart Borrower Blog

Federal Reserve Raises Rate, Predicts More 2017 Increases


Dec 14th, 2016 @ 9:04 PM by Amber Nelson


The Federal Reserve raised its target federal funds rate today for only the second time in the past decade, a sign of their confidence in the U.S. economy.

The Federal Open Market Committee raised its rate to the range of 0.5 percent to 0.75 percent, up from 0.25 percent to 0.5 percent. The Committee had increased the rate once in 2015 from the range of 0 percent to 0.25 percent where it had been stuck since 2008.

The decision to raise rates came “in view of realized and expected labor market conditions and inflation,” the Committee said in its statement . The Fed says the general inflation rate has reached 1.5 percent. While inflation is not yet at the Fed’s desired 2.0 percent range, it is up from 1.3 percent in September and the Fed expects it to continue to rise in coming months.

The unemployment rate fell to 4.6 percent of the U.S. workforce in November, falling to a nine-year low. The Committee now expects it to further decline to 4.5 percent in 2017. Gross domestic product rose to 3.2 percent in the third quarter this year and the Fed now believes overall GDP will rise slightly faster next year than they had earlier expected.

Much of the real and expected economic growth is a result of Donald Trump’s election. Since November 8, the Dow Jones has reached a record high of 20,000 and the dollar has increased in strength. Mortgage interest rates have also jumped up.

Trump has promised to reduce taxes for businesses and individuals and has also announced plans to spend as much as $1 trillion on infrastructure projects.

In light of the expectations for higher inflation and economic growth, the FOMC has now forecasted that it will raise its rate another three times in 2017, ended up around 1.4 percent. A higher federal funds rate has the potential to affect everything from home loan rates to business loan rates to savings deposit interest rates.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

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