Fed Raises Key Interest Rate For 4th Time Since 2015

Federal Reserve Chair Janet Yellen speaks to reporters in Washington, D.C., on Wednesday after the Fed announced it would increase interest rates by a quarter-point.

Susan Walsh/AP 

 

Updated at 3:55 p.m. ET.
Federal Reserve policymakers have raised their target for the benchmark federal funds interest rate by a quarter-point, to a range of 1 percent to 1.25 percent.
Despite the increase — the fourth since December 2015 — interest rates remain near historic lows, but the move will mean higher borrowing costs for consumers. The Fed previously raised rates in March, and on Wednesday, it signaled plans for one more rate increase this year.

In a statement Wednesday, the policymakers said that "the labor market has continued to strengthen and that economic activity has been rising moderately so far this year."
The economy grew at a rate of 1.2 percent in the first quarter of this year, about half as fast as it did in the final three months of 2016. Unemployment dipped to 4.3 percent in May, a 16-year low.
"Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined," the Fed statement said. "Household spending has picked up in recent months, and business fixed investment has continued to expand."

Greg McBride, an analyst with consumer financial site Bankrate.com, tells NPR's Yuki Noguchi that, taken together, the Fed's moves have caused home equity and car loan rates to increase about 1 percentage point over the last two years.
"The combination of rising debt burdens and rising interest rates is starting to strain some households, and we're seeing delinquencies pick up from recent lows," McBride says.
In the wake of the financial crisis, the central bank added Treasury securities and mortgage-backed securities to its balance sheet. Now it's making plans to reduce those holdings, which total more than $4 trillion.
The Fed said it "currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated."
As Reuters reports:

"The central bank said it would gradually ramp up the pace of its balance sheet reduction and anticipates the plan would feature halting reinvestments of ever-larger amounts of maturing securities.
"The Fed said the initial cap for Treasuries would be set at $6 billion per month initially and increase by $6 billion increments every three months over a 12-month period until it reached $30 billion per month in reductions to its holdings.
"For agency debt and mortgage-backed securities, the cap will be $4 billion per month initially, increasing by $4 billion at quarterly intervals over a year until it reached $20 billion per month."

Robert Bobby Darvish Platinum Lending Solutions Newport Beach CA

Mortgage rates edge higher but remain within a narrow band

 

(Jason Reed/Reuters)

Mortgage rates wandered higher again this week after a brief slip but remain within a narrow band.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average ticked up to 4.05 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 4.02 percent a week ago and 3.57 percent a year ago. The 30-year average has hovered between 4.02 percent and 4.05 percent the past three weeks.
“Mixed economic reports over the last few weeks have anchored the 30-year mortgage rate around the 4 percent mark,” Sean Becketti, Freddie Mac chief economist, said in a statement.

[New rules on student loans may make it easier for many to qualify for mortgages]

The 15-year fixed-rate average rose to 3.29 percent with an average 0.5 point. It was 3.27 percent a week ago and 2.81 percent a year ago. The five-year adjustable rate average increased to 3.14 percent with an average 0.5 point. It was 3.13 percent a week ago and 2.78 percent a year ago.
With the yield on the 10-year Treasury climbing to 2.42 percent Tuesday, its highest point since March 30, home loan rates — which tend to follow the movement of long-term bonds — were slowing moving higher. Then came the unexpected firing of FBI Director James B. Comey. Because this type of news makes investors anxious and causes them to seek safety in bonds, the yield on the 10-year U.S. bond slid to 2.41 percent Wednesday.
The retreat in long-term bond yields came too late in the week to be factored into Freddie Mac’s survey. The government-backed mortgage-backer aggregates rates weekly from 125 lenders from across the country to come up with a national home loan rate average.

[As equity rises, many homeowners use refinancings to free up cash]

Experts are mixed on where mortgage rates are headed. Rates had fallen in 6 of the past 7 weeks. Bankrate.com, which puts out a weekly mortgage rate trend index, found that about half of the experts it surveyed say rates will go up and another half say they will remain relatively stable in the coming week. Less than 10 percent say they will fall. Greg McBride, chief financial analyst for Bankrate.com, is one who expects rates to rise.
“The job market is tightening, inflation is moving up, and the Fed is poised to raise rates in June — all of which is providing some lift to mortgage rates,” McBride said.
Meanwhile, mortgage applications picked up last week, according to the latest data from the Mortgage Bankers Association. The market composite index — a measure of total loan application volume — increased 2.4 percent. The refinance index rose 3 percent, while the purchase index grew 2 percent to its highest level since October 2015.
The refinance share of mortgage activity accounted for 41.9 percent of all applications.

Robert Bobby Darvish platinum Lending Solutions of Orange County

Yellen: Fed will raise interest rates, let economy "coast"

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  Right: Federal Reserve Chair Janet Yellen Left: moderator Susan M. Collins, Sanford Weill Dean of Public Policy at the University of Michigan Gerald R. Ford School of Public Policy.

  Tyler Scott / Michigan Radio

Federal Reserve Chair Janet Yellen said at a University of Michigan event today the Fed plans to gradually raise short-term interest rates.
Yellen said the change in monetary policy comes after years of holding short-terms interest rates at low levels.
“I think we have a healthy economy now ... but it’s been a long time coming,” Yellen said.
Yellen said the current unemployment rate of 4.5% is “even a little bit below” what Yellen and her other colleagues at the Fed would consider “full employment.” She said inflation is “reasonably close” to the Fed’s stated goal of two percent.
She said the economy's current moderate level of growth is due in large part to increased consumer spending, but that the health of the housing market has improved, as well as investment spending and the global economy.
“Looking forward I think the economy is going to continue to grow at a moderate pace,” Yellen said.
Yellen, who assumed office in 2014, comes to the end of her term as Fed chair next year. She said the new monetary policy of the Fed, including raising interest rates, is focused on maintaining current levels of economic growth.
After the global financial crisis of the mid-2000s, the Fed did practically everything it could from a monetary policy perspective to increase consumer spending, including holding the “overnight” interest at nearly zero percent for years, according to Yellen.
But in those years, lowering short-term interest wasn’t enough. The Fed also bought treasury and mortgage-backed securities to lower long-term interest rates, according to Yellen. In addition, the Fed practiced what Yellen called “forward guidance,” reassuring the financial markets that interest rates would remain low.
“Before, we had our foot pressed down on the gas pedal trying to give the economy all the ‘oomph’ we possibly could,” Yellen said. “Now, [we want to be] allowing the economy to coast and remain on an even keel.”
Yellen also said it is important to begin rising interest rates before the economy “overheats."
“We don’t want to be in a position where we have to raise rates rapidly, which could conceivably cause another recession,” Yellen said. “We want to be ahead of the curve and not behind it.”

Why We Could Get Negative Interest Rates Even Though The Fed Is Hiking

Federal Reserve Board Chairman Janet Yellen speaks during a briefing on March 15, 2017 in Washington, DC. / AFP PHOTO / Brendan Smialowski/Getty Images

At its March meeting, the Federal Reserve raised interest rates by 0.25%. In doing so, it hiked rates for only the third time since 2006. However, in a strange turn of events, the Fed’s move was perceived as a dovish one by the markets.
That’s because even with inflation at its highest level since 2012, the Fed said monetary policy will remain accommodative “for some time.” As has been the case in the past, the Fed is willing to let inflation consolidate above its 2% target before embarking on a more aggressive tightening path.
This willingness to let inflation “run hot” means even as nominal rates rise, real rates—that is, the nominal interest rate minus inflation—are headed into negative territory.
So what are the implications of negative real rates?
Negative Real Rates Drive Gold Higher
The consumer price index (CPI), the most widely used measure of inflation, averaged 2.67% for the first two months of the year. Even if inflation averaged only 2% for all of 2017—the Fed’s target—it would be a big problem for investors and savers alike.
Today, a one-year bank CD pays about 1.4%. Therefore, anyone who keeps their money in a bank is watching their purchasing power erode.
Of course, there are other options. You can put your money in U.S. Treasuries or dividend-paying stocks—both popular sources of fixed income.
However, with both the 10-year Treasury yield and the average dividend yield for a company on the S&P 500 hovering around 2.35%, that doesn’t leave much in the way of real gains if inflation is running at 2% per annum.
If inflation rises or bond yields fall, real interest rates will be pushed into the red… and that’s very bullish for gold.
Gold is known as the yellow metal with no yield, but simple math tells us no yield is better than a negative one. Because of this, gold has done well when real rates are in negative territory. In fact, real US interest rates are a major determinate of which direction the price of gold moves in.
A study from the National Bureau of Economic Research found that from 1997–2012, the correlation between real U.S. interest rates and the gold price was -0.82.
This means as real rates rise, the price of gold falls and vice versa. A -1.0 reading would be a perfect negative correlation, so this is a tight relationship.

The Fed’s hesitation to raise rates faster is contributing to another trend that is also bullish for gold.
A Falling Dollar Equals Higher Gold Prices
In the six weeks following the US election, the dollar skyrocketed 5.6%—a huge move for a currency.
However, since the beginning of the year, the greenback has given back most of its post-election gains. This is in part due to the Fed’s “dovishness” on interest rates.
The strong negative correlation between gold and the U.S. dollar is a major reason the yellow metal is up over 9% year to date.

Market Realist

In the March edition of Bank of America Merrill Lynch’s Global Fund Manager Survey, respondents thought the dollar was at its most overvalued level since 2006. As the chart shows, the survey has a good track record of determining when the dollar is overvalued.

Bank of America Merrill Lynch

Tying it all together, what do these trends mean for gold?
Gold Should Go Higher from Here
With arguably the two biggest drivers of the gold price trending in the yellow metal’s favor, gold is likely to go higher. Although the dollar could rise if Washington implements some structural reform, real rates aren’t headed higher anytime soon based on the Fed’s actions.
Bank of America Merrill Lynch said these two trends were part of the reason why it upgraded its forecast for gold to $1,400 per oz. by year-end. As the chart below shows, the market turned bullish on gold following the Fed’s December rate hike.
In closing, after nine years of doing its utmost to generate inflation, the Fed has finally succeeded. If past is prologue, as inflation rises over the coming months, gold will do very well.
If you’re considering getting some gold before it goes up, do your homework first.

Robert Bobby Darvish Platinum Lending Solutions

Beware of mind games when shopping mortgage rates

(Photo: Getty Images/iStockphoto)

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Sometimes our brain gets in the way of a good decision. It’s called “cognitive bias,” and it happens when our mind tricks us into making irrational choices. We think something is true — and we just go with it.
Here’s how to keep your mind from messing with you when shopping for the best mortgage rate.

Raise the anchor

Maybe your ears perked up when you heard about 3.5% mortgage rates last summer. You started to think about buying a home or possibly refinancing. But now rates are closer to 4.5%.
In this case, the mind game at work is called “anchoring.” You just can’t get that 3.5% rate out of your head.

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"Once you have that number in your mind, it's very hard for you to be flexible about proceeding with a financial decision," says Mary Gresham, a psychologist in Atlanta. “You might think, 'Well, I'll just wait until it goes back [down] to that.’"
But if rates keep moving higher, you might wish later that you had snagged that “high” 4.5% rate.

Don’t get hung up on framing

Another way our brain sometimes blocks our best interests is through “framing” — drawing varying conclusions from the same information when it’s presented differently.
"Percentages look small," says Dan Ariely, professor of psychology and behavioral economics at Duke University. "Imagine if instead, mortgages were framed not in terms of percentages but in terms of how much we're going to pay in interest over the life of the mortgage." This information is available to borrowers, but it's generally not how they comparison shop for a loan, Ariely says.

This company will double your down payment. What’s the catch?

The difference between a 4.75% and a 4.5% rate might not seem like big — but what if you considered total costs? You may be less willing to choose a product that charged $25,000 more in interest over the life of the loan and had $3,000 more in closing fees.

Slow and steady wins the rate

Avoiding irrational thinking requires knowing a bit about how your thought processes work.
"We have two brain systems that do our finances for us,” Gresham says. “One is what we call the fast, emotional system. And the other is the slow, rational system. Take your time and think it through. Don't make a quick decision about finances."

'A bad idea': More new mortgages are risky ones

As Ariely notes, "We decide on a mortgage too early without truly searching and without negotiating."
Consider the big picture and the big numbers. Shopping annual percentage rates (APRs) rather than just a lender’s published rates, and considering your total costs can help you choose the best mortgage.
And give your mind a little more time to work out the details.

Robert Bobby Darvish of Platinum Lending Solutions of Orange County

Mortgage rates move lower for Friday Feb 24 2017

Mortgage rates move lower for Friday

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Yuganov Konstantin/Shutterstock.com

Several key mortgage rates dropped today. The average rates on 30-year fixed and 15-year fixed mortgages both decreased. On the variable-mortgage side, the average rate on 5/1 adjustable-rate mortgages also fell.
Mortgage rates are in a constant state of flux, but, overall, they are very low by historical standards. If you're in the market for a mortgage, it may be a great time to lock in a rate. Just make sure you shop around first.
RATE SEARCH: Compare mortgage rates in your area now.

30-year fixed mortgages

The average rate you'll pay for a 30-year fixed mortgage is 3.97 percent, down 7 basis points
over the last week. A month ago, the average rate on a 30-year fixed mortgage was higher, at 4.09 percent.
At the current average rate, you'll pay a combined $475.69 per month in principal and interest for every $100,000 you borrow. That's a decline of $4.03 from last week.
You can use Bankrate's mortgage calculator to estimate your monthly payments and see how much you'll save by adding extra payments. It will also help you calculate how much interest you'll pay over the life of the loan.

15-year fixed mortgages

The average 15-year fixed-mortgage rate is 3.16 percent, down 2 basis points
over the last seven days.
Monthly payments on a 15-year fixed mortgage at that rate will cost around $698 per $100,000 borrowed. The bigger payment may be a little more difficult to find room for in your monthly budget than a 30-year mortgage payment would, but it comes with some big advantages: You'll come out several thousand dollars ahead over the life of the loan in total interest paid and build equity much more quickly.

5/1 ARMs

The average rate on a 5/1 ARM is 3.15 percent, falling 1 basis point from a week ago.
These types of loans are best for those who expect to sell or refinance before the first or second adjustment. Rates could be substantially higher when the loan first adjusts, and thereafter.
Monthly payments on a 5/1 ARM at 3.15 percent would cost about $430 for each $100,000 borrowed over the initial five years, but could increase by hundreds of dollars afterward, depending on the loan's terms.

Where rates are headed

To see where Bankrate's panel of experts expect rates to go from here, check out our Rate Trend Index.
RATE SEARCH: Want to see where rates are right now? See local mortgage rates.

Average mortgage rates

Product	Rate	Change	Last week
30-year fixed	3.97%	0.07	4.04%
15-year fixed	3.16%	0.02	3.18%
30-year fixed jumbo	4.46%	0.16	4.30%
30-year fixed refinance	3.99%	0.09	4.08%

Last updated: February 24, 2017.

Methodology: The rates you see above are Bankrate.com Site Averages. These calculations are run after the close of the previous business day and include rates and/or yields we have collected that day for a specific banking product. Bankrate.com site averages tend to be volatile -- they help consumers see the movement of rates day to day. The institutions included in the "Bankrate.com Site Average" tables will be different from one day to the next, depending on which institutions' rates we gather on a particular day for presentation on the site.
To learn more about the different rate averages Bankrate publishes, see "Understanding Bankrate's Rate Averages."

Bobby Robert Darvish Platinum Lending Solutions Orange County

Mortgage Rates Were Up on Friday as the Jobs Report Showed the Signs of a "Trump Effect"

Mortgage rates were slightly higher on Friday. Meanwhile, the U.S. economy added 227,000 jobs in the month of January, beating expectations and providing evidence that the "Trump effect" on animal spirits has had an early economic impact.

The average 30-year mortgage rate rose four basis points, to 4.08%, on Friday, which equates to a $482.04 monthly payment per $100,000 borrowed (one basis point equals one-hundredth of a percentage point). A month ago, the equivalent payment was lower by $1.74.
The average 15-year mortgage rate rose one basis point, to 3.23%, equating to a $701.70 monthly payment per $100,000 borrowed. A month ago, the equivalent payment was the same.

Rate (national average)	Today	1 Month Ago
30-year fixed jumbo	4.48%	4.57%
30-year fixed	4.08%	4.05%
15-year fixed	3.23%	3.23%
30-year fixed refi	4.11%	4.09%
15-year fixed refi	3.25%	3.25%
5/1 ARM	3.26%	3.39%
5/1 ARM refi	3.33%	3.60%

5/1 ARM: ADJUSTABLE-RATE MORTGAGE WITH AN INITIAL FIXED FIVE-YEAR INTEREST RATE. DATA SOURCE: BLOOMBERG. RATES MAY INCLUDE POINTS.

Image source: Getty Images.

Mortgage rates are closely linked to the yield on the 10-year Treasury bond. That yield, in turn, reflects the bond market's expectations for future short-term interest rates over the bond's maturity. And short-term interest rates, well, they reflect the Fed's assessment of the economy and its prospects.

This brings us to the most highly anticipated macroeconomic data release: the Labor Department's monthly Employment Situation Report. This morning's report was no different, as economists and investors try to find their bearings during the first 100 days of the iconoclastic Trump administration.
The January report was broadly positive with 227,000 workers added to payrolls, surpassing the consensus forecast of 175,000. As the following graph shows, the figure for January (blue line) is above the trailing 12-month average of 195,000 (red line):

Image source: Federal Reserve Bank of St. Louis.

The unemployment rate ticked up by a tenth of a percentage point, to 4.8%, but the trend reflects an economy that's creating enough jobs to maintain the unemployment rate (green line) at 5% or below. (Note that the participation rate has remained pretty stable over this period.)
While their ardor appears to have cooled somewhat since the actual handover in power, stock and bond market investors took a very buoyant view of economic prospects under the new administration. The narrative was that a businessman in the highest office would act decisively to boost American businesses, and that was plainly enough to raise "animal spirits." Today's data suggests the "Trump effect" probably had a genuine economic impact, but investors need to "watch the downside," too.

By: Robert Bobby Darvish of Platinum Lending Solutions of Orange County