Monday, August 24, 2015

Will they or won't they? Fed hints at delay while Dow crashes

Graph created by; data from Federal Reserve and Emolument

Those of us in the mortgage industry have been waiting for months to get clear indication from Federal Reserve System officials when they will start pushing to raise central interest rates. After several years of gradual market recovery from the Great Recession, the Fed has long hinted that eventually, they will have to start lifting interest rates off the ground to keep the economy moving forward.

In the wake of the Great Recession housing crash, homebuyers were able to take advantage of both government aid programs to recoup housing losses as well as historic low interest rates. These record low rates have saved homeowners hundreds, if not thousands, of dollars per month in monthly interest payments. Money saved in housing payments can either be invested elsewhere or spent and pumped back into the economy.

Rate hike likely off the table for Sept. Fed meeting

Now we are in a "wait and see" mode to find out when all of the market changes will affect mortgage interest rates. Earlier this year, Fed officials suggested that they may start raising rates following their September 2015 meeting. However, they will not do so until many different market indicators are strong enough to withhold a rate hike.

On Monday, the Dow Jones industrial average dropped over 1,100 points before recovering roughly half that. It was the single largest one-day drop in the market's entire history. Clearly, investors are deeply worried about implications of the Chinese market struggles as well as any impending drastic rate changes. If the stock markets continue tumbling, it's a safe bet that we won't see any real rate increases for some time to come.