2018 Sees the First of Several Rate Hikes

Filed in Economics by on March 22, 2018 0 Comments

As forecast, the Federal Reserve raised the federal funds rate this month — the first of what will likely be at least three rate hikes this year. Additionally, the Federal Open Market Committee now projects three hikes in 2019 and at least two more in 2020.

The latest decision to continue raising rates largely factored in February’s strong labor market report, which noted employment increased by 313,000, while the unemployment rate held steady at 4.1%. Wage growth also grew by an estimated 2.6% compared to last year.

“The Fed must be careful not to move too fast, as inflation remains low and price increases can be slowed by additional supply, particularly in housing,” said NAHB Chief Economist Robert Dietz.

“While higher interest rates will increase the cost of borrowing for home buyers and builders, after-tax incomes will also rise in 2018 and help to offset the effects on housing affordability,” Dietz continued. “Housing affordability was flat throughout 2017. And developers are reporting easing conditions for AD&C loans, the market for which grew by 7% in 2017 compared to 2016.”

Read the recent Eye On Housing post for more analysis on the impact of the rising rates and the inflation projections.

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