Federal Reserve raises its key rate 1/4% – The Fed announced Wednesday that it was raising its Discount and Federal Funds rate by 1/4%. This was just the second increase in 10 years. The first was done last December with an announcement to expect two more increases in 2016. The first increase did not happen as growth slowed during the first half of the year. GDP growth was just 1.1% for the first 6 months of 2016. The third quarter showed far more growth as the GDP rebounded to 3% growth and hiring picked back up. The Fed mentioned these as part of their decision for Wednesday’s increase. They also stated that they expected to make three more increases in 2017. Experts had expected that number to be two increases. The market was expecting the increase, and an announcement of two rate hikes expected next year, not three. That moved the markets down slightly. When The Fed increases rates those increases tend to affect short term rates more than long term rates. That was the case this week as short term treasury rates increased while the 30 year barely moved up. Equity lines tied to prime moved up 1/4% following the announcement. ARM mortgages will also move up. Shorter term hybrids like 3, and 5 year fixed moved up while the 30 year fixed barely moved.
Stocks end week just slightly below record highs – All indexes hit record highs on Tuesday before being dragged down a bit after The Fed announced a 1/4% rate hike on Wednesday. The rate hike was largely expected so stocks didn’t lose much following the announcement. The DOW Jones Industrial Average closed the week at 19,843.41, up from last week’s close of 19,756.85. The S&P 500 ended the week at 2,258.07, unchanged from its close of 2,259.53 last week. The NASDAQ closed the week at 5,437.16, slightly off from last week’s close of 5,444.50.
U.S. Treasury Bond yields higher – The 10-year U.S. Treasury Bond closed the week yielding 2.60%, up from 2.47% last Friday. The 30-year Treasury Bond yield closed the week at 3.19%, up from 3.16% last week. Mortgage rates follow bond yields, so we watch treasury bonds closely.
Mortgage rates continue to inch up – The Freddie Mac Primary Mortgage Survey released on December 15, 2016 showed that average mortgage rates from lenders surveyed for the most popular mortgage products were as follows: The 30-year fixed rate average was 4.16% The 15-year fixed average rate was 3.37%. The 5/1 ARM average rate was 3.19%. Rates rose Thursday and Friday so next week’s rates will be slightly higher.