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June 14, 2018
On Wednesday, the Federal Reserve raised interest rates and signaled that at least two more increases could be on the way later this year. Fed chairman Jerome Powell, in a news conference Wednesday, said the U.S. economy had strengthened enough for borrowing costs to rise without choking off economic growth. He noted that the economy had strengthened significantly since the financial crisis of 2008 and was approaching a normal level that could allow the Fed to step back and play less of a role in encouraging economic activity.
The decision reflected an economy that is getting even stronger. Unemployment is 3.8%, the lowest since 2000, and the inflation rate is low. Rather than one lump increase, the Fed has decided to raise rates gradually throughout the year to keep the economy from overheating.
The Fed’s optimism about the state of the economy is likely to translate into higher borrowing costs for cars, home mortgages and credit cards over the next year. Mortgage rates have already been on the rise. While home mortgage rates tend to move with the bond market, their rates can also rise because of a higher federal funds rate. A higher rate makes it more expensive for banks to borrow money, which can translate into higher borrowing rates for consumers.
Increases in mortgage rates can add hundreds of dollars in monthly costs for homebuyers, particularly high-end homebuyers. The average monthly mortgage payment is up 13 percent as of last month compared to the year before, according to Realtor.com data cited by the Wall Street Journal. That translates into a $241-per-month increase on homes in the top 10 percent of the market and a $168-per-month increase across the board.
Source: The Real Deal Miami
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