Feds raise discount rate to 2.250%


Above caption.  Federal Reserve Chairman Jerome Powell Holds A News Conference Following Federal Open Market Committee Meeting
WASHINGTON, DC - SEPTEMBER 26: Federal Reserve Board Chairman Jerome Powell speaks during a news conference on September 26, 2018 in Washington, DC. The US Federal Reserve raised the short-term interest rates by a quarter percentage point on Wednesday, the third increase of the year, and signaled two more hikes were coming in 2018 and four in 2019. (Photo by Mark Wilson/Getty Images)

CHICAGO, IL – SEPTEMBER 26: Traders monitor offers in the S&P options pit at the Cboe Global Markets exchange shortly after the Federal Reserve announced it was raising interest rates on September 26, 2018 in Chicago, Illinois. The Fed agreed to increase the federal funds rate a quarter percentage point, to a range of 2% to 2.25%. (Photo by Scott Olson/Getty Images)

[Washington, DC]   In a move that was forecast several weeks ago, this afternoon Jerome Powell, chairman of the Federal Reserve raised the discount rate to 2.250%.  This move occurred to the chagrin of his boss and the person who appointed him Donald Trump,  as since June of this year he has been quite vocal that Powell should not raise rates.

The Feds are non-partisan and to effectively operate are independent of political interference.  As customary,  president’s and those in leadership refrain from making comments about monetary policy.  That is most, except Trump who once again has demonstrated his lack of understanding  regarding political protocol.

 

“I’m not thrilled,” Trump said in an interview last month

 


Powell has stood firm and justified the move to control a positive economy.  The discount rate is the cost commercial banks pay for funds.  Their impact does not immediately affect consumers but they typically result in higher borrower costs.

 

You can’t have it both ways

 

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent.  Jerome Powell, Fed Chairman

 

Ever since the financial meltdown of 2008, systemic changes were adopted to strengthen the economy.  In Trump’s case, even though it is very tough for him to admit he inherited an economy that had all the signs of positive growth, as a practical measure it must be properly managed.  As the economy moves forward, it is the Fed’s who are in control of monetary policy and to manage interest rates so that inflation of other negative factors are mitigated.

The nine member panel of the Federal Reserve Open Market Committee voted unanimously to support the increase.

Here is Powell’s full report to the media.

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

Fed raises rate a quarter of a percent


[Washington, D.C.]  In its last meeting for 2017 the Federal Reserve’s Federal Open Market Committee (FOMC`) agreed to raise the discount rate from 1.250% to 1.500%.  The move was expected and based on the health of the economy and the unemployment rate falling, if not holding steady, the Fed’s felt the move will benefit the economy in the long run.  It was also mentioned the move is designed to thwart inflation and keep it no higher than two percent.

 

“The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.”  FOMC

 

Two dissenting votes

 

On the nine FOMC voting members, surprisingly there were two who voted against the increase due to concerns of maintaining the existing target.

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Voting for: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Patrick Harker; Robert S. Kaplan; Jerome H. Powell; and Randal K. Quarles.

Voting against the action were Charles L. Evans and Neel Kashkari.