Fed PolicyInvestmentsMortgage

Yellen sends strong signal Fed is close to raising rates again

Does not mention new President-elect

Federal Reserve Chair Janet Yellen implied that an interest rate hike is just around the corner, according to an article by Christopher Condon and Rich Miller for Bloomberg.

Yellen stated that a rate hike “could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the committee’s objectives,” in her testimony before Congress’ Joint Economic Committee Thursday, according to the article.

From the article:

Yellen, who made no mention of the prospective policies of the incoming administration of President-elect Donald Trump, reiterated the expectation of Fed officials that future rate increases will be “gradual.” Bond prices have fallen and stocks have risen as investors anticipate that Trump’s proposals to cut taxes and boost infrastructure and defense spending will lead to faster inflation and stronger growth.

“Yellen’s testimony ignored the very real possibility of substantial fiscal stimulus next year,” Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd., said in a note. She “does not want the Fed to become even more of a political punch bag than it is already.”

If markets continue at their current pace, there is little change the Federal Open Market Committee does not raise rates at their last meeting of the year, according to the article.

The market is continuing to show positive signs that it’s ready for a rate hike. New home construction broke its downward trend and increased significantly in October – its highest monthly increase in over 30 years – according to a new report from the U.S. Census Bureau.

But that isn’t the only thing increasing. Since Trump’s election the stock market rose sharply, reaching record highs late last week.

According to data provided by Zillow, the 30-year fixed mortgage interest rate spiked in the aftermath of Trump’s election, rising from 3.38% on Tuesday to 3.8% on Monday morning. Today’s survey from Freddie Mac showed the 30-year fixed rate mortgage almost hit 4%.

In fact, even the Fed is reportedly beginning to wonder if the traditional “lower for longer” theme of previous years will need revisions.

The truth is, Trump’s lack of focus on housing during his campaign makes it difficult to predict just where the market is going to go next.

Many housing experts are divided in their opinion of what turn the markets will make next lead by the Trump administration.

The markets saw a major shift after Trump’s first week as President-elect, but is that a long-term trend, or a temporary high? Time will tell.

For now, Yellen said the Fed is close to raising rates if the economy continues to create jobs at a healthy clip and inflation inches higher, according to the Bloomberg article.

“In other words, barring an indication of momentum tilting to the downside, even maintaining the moderate status quo should be enough to sway Committee members in favor of a second-round hike by the end of the year,” Stifel Chief Economist Lindsey Piegza said.

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