Yellen gives up gavel, mortgage rates continue to climb


Yesterday Dr. Janet Yellen chaired her last fed meeting of the Federal Open Market Committee.  The committee is part of the Federal Reserve leadership and they chose to keep rates unchanged.  Dr. Yellen passed the gavel to Trump nominee and incoming chair, Mr. Jerome Powell.  Yellen is an Obama appointee and since 2014 has served as chair.  The move was expected and even though the discount rate did not change there is speculation for increases as we move into the year.  The economy continues to move in a positive direction and it is the Fed’s mandate to manage monetary policy.

Mortgage

On the mortgage side of consumer finances, the benchmark 30-year fixed rate mortgage continued to rise.  In week over week reporting from the Freddie Mac primary market rate survey rates moved up seven basis points to 4.22%.  The increase in rates was expected based on economic conditions.  While consumer confidence also continues to improve the jump in rates affects affordability, especially for those on the margins where qualifying for a mortgage could be trickier.

 

Seven basis points represents almost 1/8th of a percent and while the movement is up there is no need for alarm as movement is based on a normal cyclical flow.  As a comparison in year over year reporting, this year’s rate of 4.22% is just three basis points from last year which was 4.19%


Snapshot of popular programs

February 1, 2018

30-Yr FRM 15-Yr FRM 5/1-Yr ARM
Average Rates 4.22% 3.68% 3.53%
Fees & Points 0.5 0.5 0.4
Margin N/A N/A 2.75

Janet Yellen:  time to move on


Today, Donald Trump appointed Jerome Powell as the next chair of the Board of Governors of the Federal Reserve system (Fed) replacing Janet Yellen.  The announcement was expected as Powell must now prepare himself to go through the gauntlet called confirmation.  Since he is already part of the board there should be no surprises and he is expected to be in place when Yellen’s term ends in February.

“I congratulate my colleague Jay Powell on his nomination to be Chairman of the Federal Reserve Board. Jay’s long and distinguished career has been marked by dedicated public service and seriousness of purpose. I am confident in his deep commitment to carrying out the vital public mission of the Federal Reserve. I am committed to working with him to ensure a smooth transition.” Janet Yellen, 11/2/17

 

Yellen was appointed as chair by President Barack Obama in 2014 and her term officially ends February 3, 2018.

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Prior to taking over the chair’s functions she was second in command under then Fed chair Ben Bernanke.   Many in the financial sector applaud her tenure as being a steady force in guiding the United States monetary policy.  Even though the position is supposed to be non-partisan, her primary criticism came from those on the opposite side of President Obama who took fault with anything and everything he proposed.  Yet, like most things history has the final say and the economy is in much better shape as she exits – stage left!

Not fake news

Her critics and several others have short memories or blatant amnesia as they forget about a decade ago, the United States economic condition was becoming quite perilous and eventually exploded in 2008 resulting in hardships for millions of citizens and people around the globe.  It was through focus and commitment that Bernanke and his team as well as the leadership of President Obama who accepted the daunting task of stabilizing the markets.  The rest is history and the residual effect is an economy which has regained its footing, including a stock market which has grown to unprecedented levels.

Fed rate remains unchanged

Yesterday the Fed’s Monetary Committee met and decided to maintain the fed discount rate, although it is still projected to increase before the end of the year.  The concern conveyed by members was acknowledgment the economy is moving is a positive direction.

As Yellen is preparing to move on the one concern being voiced is the GOP’s proposed tax reform bill.  Monetary policy is a methodical process and it takes extreme discipline to not allow partisan politics to be the guiding force to ensure normalization.

 

“That task could be complicated  by the GOP plan to inject huge stimulus into an already-healthy economy. Doing so may force the Fed to more aggressively raise rates to prevent the economy from overheating. “