December 16, 2015, will forever be known as the day that the Federal Open Market Committee increased the federal funds rate for the first time since June 2006, but one housing industry insider expects that this rate hike won’t be the last one — far from it, in fact.
In a note published shortly after the Federal Reserve’s announcement, Doug Duncan, Fannie Mae’s chief economist, said that Wednesday’s announcement is just the first step in a longer journey for the Fed and that he expects to see several more rate hikes in 2016.
“This is one small step on an overdue journey for the Fed,” Duncan said.
“It should not be any surprise that markets were unsettled prior to the September meeting (rate increase expected) and to the current meeting, given the nature and magnitude of the central bank’s intervention in the economy,” Duncan continued.
“Market expectations of future Fed actions will likely continue to be volatile given the deviation from traditional monetary policy tools and the Fed’s outsized balance sheet,” Duncan said. “Today’s dovish statement reinforces our expectations of a gradual pace of tightening. The comment on the reinvestment policy suggests that any shrinking of the balance sheet would not begin until perhaps a year from now.”
Duncan said that Fannie Mae now expects three more hikes in the federal funds target in the next year.
Duncan also said that Fannie Mae expects the 30-year fixed mortgage rate to rise from 3.9% in the fourth quarter of this year to 4.1% by this time next year.