Fed Votes to Raise Key Interest Rate Again

On Wednesday, the Federal Reserve took a largely expected move to raise its key interest rate one-quarter percentage point. This marks the second of three hikes that is expected to occur this year.


While mortgage rates aren’t directly tied to the Fed’s key interest rate, rates are still influenced by the movement. Mortgage rates are predicted to start rising, and many homeowners and prospective homeowners are already bracing for an uptick.

In a recent survey of home buyers and owners by Berkshire Hathaway, 55 percent of millennials reported discouragement about buying a home due to rising rates. Some 68 percent feel pressured to buy a home before rates increase further.

The latest rate hike is partly justified from ongoing economic expansion and also a steadily falling unemployment rate, however, the Federal Reserve should be mindful of the lower than expected rate of inflation and the consequent low interest rates on long-dated bonds, like 10-year Treasury and 30-year mortgage rates. An inversion in interest rates of short-term fed funds being higher than long-term bond yields can easily pull down the economy into a downward spiral.

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