The Federal Reverse raised interest rate for the third time this year, pushing rates up by .25% to 2.25%.
Strong economic growth and a booming job market have led to the eighth rate hike since 2015, as the Fed tries to rein in the acceleration of inflation.
A growing base of experts expect the Fed to continue raising interest rates incrementally as long as employment growth keeps surging to prevent the economy from overheating. With today's rate hike, the Fed has raised the target range for the federal funds rate to 2% to 2.25%, according to its statement.
Some experts, however, are saying there is merit to leaving interest rates alone as long as inflation doesn’t increase meaningfully beyond the 2% target. This opinion is unconventional, but in a speech reported by the Wall Street Journal, Fed Chairman Jerome Powell expressed a willingness to consider breaking from tradition to avoid unnecessarily quashing economic momentum in the U.S.
Though rising interest rates typically foment anxiety over the strength of homebuyer demand, First American Chief Economist Mark Fleming says the strength of the economy should mitigate any negative effects on homebuyer demand due to rising interest rates.
“The gross domestic product grew at a 4.2% annualized rate in the second quarter of 2018, the strongest pace of growth since 2014. The economy has added jobs every month for 94 consecutive months, producing the lowest unemployment rate since 2000. Additionally, the housing market is facing a wave of Millennial first-time home buyer demand. In fact, more than 50 percent of all homes purchased in the second quarter of 2018 were bought by first-time home buyers,” Fleming said.
“The boost from the strong economy and first-time home buyer demand should overcome any downward pressure from rising rates on home sales. While the pace of sales may initially slow, home buyers typically adjust to the new rate environment,” he added.
