Janet Yellen was right on schedule this week as the Federal Reserve raised the Prime Rate a quarter point.  What was noteworthy was the immediate response from the bond market and stock market which both rallied on the news.  Why that happens is because financial markets have known for many weeks that the rate hike was coming so the rate hike was already priced into the markets.  In fact mortgage rates actually went down a bit which is contrary to what the public would expect. Remember when the Fed raises rates the immediate impact is on short term rates while long term mortgage rates are directly influenced by the bond market which like the stock market is subject to a myriad of economic and world events.  Keep in mind that the Fed is planning on raising the prime rate again later this year and the timing of future rate increases may be determined by just how successful Trump is in getting his pro growth agenda through congress.  For a detailed analysis see the article below.

Source: The Fed Delivers a Hike and a Message – Bloomberg View

Paul Gusiff
Century 21 Westworld
Paul@paulgusiff.com
Office (714)523-7151
Cell (562)208-4887
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Source: The Fed and Wall Street Differ on How High Rates Will Go – Bloomberg Business

As most everyone one knows the Fed this last week raised rates for the first time since 2006. If you are in the Keynesian economic camp you may be hesitant to embrace this change, but if you are in the  Monetarist economic camp you are thinking it is about time.  Of course for most of us who do not follow the latest economic theories we are primarily wondering how this will affect home values and stock portfolios. It is important to understand that this change is not a one time event and does not happen in a vacuum of a narrow time frame. The changes will take place over the months ahead as the Fed considers future increases. Many factors went into the decision to raise rates but the overriding factor was a belief that the economy was stable enough to begin the road back to a somewhat normal interest rate structure that would ensure a stable dollar.  How that plays out is where the debate really intensifies and as you can imagine there is no shortage of opinions.  The Fed and Wall St actually see the markets from different prism’s and depending on how events unfold it will be interesting to see who is right. For an interesting read on the tension between the Fed and Wall St click the attached link.

Paul Gusiff
Century 21 Westworld
Paul@Paulgusiff.com
Cell (562)208-4887
License #972091