Yellen stepping down, December rate hike possible

Federal Reserve chairwoman Janet Yellen will step down from the board early next year. Photo by Chip Somodevilla/Getty Images

 

With the end of her tenure as Fed chief coming in February 2018, Janet Yellen has announced she will leave the Federal Reserve board altogether. Her departure marks the end of an era in which unemployment has dropped to a near record low 4.1 percent and millions of jobs have been added in the post-Recession recovery years. She will be replaced by President Trump's new nominee Jerome Powell as chairman of the Fed board.

Meanwhile, Fed leaders indicated this week that another increase to the key central bank interest rate could be coming again in December this year. Board members will likely factor in the November job report, wage gains or losses, consumer spending and other variables before making a decision at their mid-December meeting to raise the benchmark interest rate.

A rate hike would not be a surprise for market investors, as multiple increases were expected throughout 2017. A potential rate hike has already been "priced in" to the markets, so no drastic changes to mortgage rates are anticipated - although nothing is ever certain. Despite 17 million jobs being added to the U.S. economy since 2009, inflation rates remain stubbornly below target, so that is one factor that could impact December rate changes.

Mortgage rates dip amid political uncertainty

Graph shows the rise and fall of mortgage interest rates over the past year.

Over the past two months, interest rates have been slipping downward following a sharp spike in rates after the U.S. election last fall. Some factors at play include the lessening likelihood of Congress passing any tax reform or deregulatory laws by the end of the year, as well as conflicts abroad involving Qatar.

The May jobs report released last week showed less impressive numbers, with a lower than expected 138,000 new jobs added. The number of jobs for March and April also were both adjusted lower than previously announced. Weaker employment numbers put downward pressure on interest rates - a positive for borrowers taking on new credit.

The Fed is holding another meeting next week but is still expected to raise the central interest rate regardless of lower job figures. Fed officials have stated that a couple more rate hikes are likely on the table in 2017, barring any drastic developments. Because the markets have been anticipating a rate hike, it will probably have minimal effect on mortgage interest rates.

Dodd-Frank to be repealed?

While former FBI director James Comey testified before the Senate on Thursday, the House passed a bill to remove much of financial regulation enacted in the Dodd-Frank act. Dodd-Frank was put in place after the economic collapse of 2008 to tighten lending standards and penalize financial institutions taking advantage of consumers with predatory schemes. Backers of the House's bill, called the Financial Choice Act, argue that lending standards have gotten too strict and are hampering growth.

The Financial Choice Act passed the House of Representatives largely on party lines but is not expected to make it through the Senate as proposed. Stay tuned to see what happens.

With roaring stock market, Fed suggests rate hikes soon

The Dow Jones industrial average broke another record this week, surpassing 21,000 for the first time.

So far, it seems there is no limit to the "Trump effect" on the stock market reaching new heights. Since the November election, the stock market has gained about 10 percent, with the Dow Jones shattering the historic 20,000 point record last month. Then it broke past the 21,000 mark this week following President Trump's speech promising tax repeals, deregulation and more infrastructure spending.

The stock market highs come at a time when the U.S. unemployment rate is low, at 4.8 percent, and wages finally climbed in 2016, pushing inflation rates to rise. These are some of the key economic indicators Federal Reserve officials will weigh to consider adjusting the central bank's interest rate at their mid-March meeting. Based on current data, it is likely Fed officials wil raise the 0.5 percent rate to 0.75 percent, which also influences other interest rates including mortgage rates.

How long will stock market boom continue?

There are still few details known about Trump's economic proposals, and unclear how many policies will garner Congressional support to become law. Thus far the markets are moving based on Trump's pro-business rhetoric coupled with stronger economic activity. The Fed has suggested there may be multiple rate hikes in 2017, but that will depend on continued economic strength.

Currently interest rates remain at relatively low levels by historic standards. If you are looking to purchase a new home or refinance your mortgage, call a Loan Advisor at 877-939-0339.

President Trump moves to suspend FHA insurance premium rate cut

FHA mortgages are backed by the federal government, offering less restrictive credit

and down payment standards to get loan approval. 

In one of his first acts as U.S. president, Donald Trump signed an executive order to suspend a scheduled 0.25 percent rate cut to the FHA program's mortgage insurance premium.

The rate reduction, which would have lowered FHA loan borrowers' mortgage insurance premium rate from 0.85 percent to 0.60 percent, was scheduled to go into effect on Friday. Former President Obama had signed the order earlier this month.

Trump's nominee for the new HUD Secretary, Dr. Ben Carson, has said he will further examine the policy if his nomination is confirmed by the Senate.

Post-election stock rally slows after inauguration

Following Trump's election in November, stocks hit new record highs on expectations that as president he would promote tax cuts, increase infrastructure spending and reduce regulations. The stock rally has slowed in recent weeks, tempered by Trump's recent comments endorsing "protectionist" policies of introducing a border tax on imported goods to the United States.

With more signs of economic strength - lower unemployment rates, increased consumer spending and homebuilder growth - inflation is also on the rise. Some economic analysts are expecting Fed board members to raise central interest rates again by the end of the second quarter of 2017.