Saturday, March 21, 2015

The Fed ready to be patient no more

But rate hikes could still be delayed depending on market activity

You may have heard, the Federal Reserve held a meeting this week. Dropping a single word out of their language, "patient," was enough to indicate their timeline for starting an increase on short-term interest rates.

With unemployment rates falling steadily, currently at about 5.5 percent nationwide, Fed officials again lowered the range of when they believe unemployment will be low enough to allow inflation to occur. They now say the target range is between 5 and 5.2 percent.

Embracing recent positive economic reports, Fed officials are no longer saying they will be "patient" when it comes time to start raising rates for the first time in nearly 10 years. The earliest this rate hike could come is in just a couple months, June 2015.

Oil prices rise, U.S. dollar slightly drops

Crude oil prices rose about 2 percent on the week to $45.72 per barrel, which boosted stocks while the U.S. dollar weakened slightly. A stronger U.S. dollar means that American goods are more expensive abroad and consequently, fewer products sell.

Fed chief Janet Yellen will continue to see which direction markets go and any movement in job creation/unemployment rates before determining when the timing is right to move interest rates upward. In the meantime, rates remain at very attractive levels for homeowners and home buyers.

Wednesday, March 11, 2015

Markets react in fear of rate hikes

 The U.S. dollar is on a strong upward trend in early 2015.

Last Friday, the February jobs report was released with more positive data for the U.S. economy. The overall unemployment rate dropped to 5.5 percent with another 295,000 jobs added, which capped the best 12 months of consistent job growth in the past 20 years.

In addition, the U.S. dollar continues to get stronger compared with other currencies, as the European Union launches a new quantitative easing program. The irony of all of these glowing economic indicators for the U.S. is that stock markets are shaking under the assumption that interest rates will increase by the middle of 2015.

It has been widely expected that the Federal Reserve will begin to push a rate hike by June 2015, which would be the first increase in nearly a decade. If rates are pushed upward - including mortgage interest rates - investors fear it would have a damaging effect on continued growth. Despite many happy economic signs, lingering issues such as stagnant wage growth and low inflation are reason enough for some to urge Fed officials to hold off on raising rates.

If the U.S. dollar continues to shine while currencies around the world suffer, global economic weakness will in turn temper U.S. growth. Financial markets rest on a see-saw that is constantly tipping in one direction or another. If it slides too far in one direction, there's always the potential for turmoil to erupt before it's corrected.