Research Weekly - The "Fed Rate" and How it Impacts Utah Dec. 2016
On December 14, 2016, the US Federal Reserve (“Fed”) increased interest rates by 25 basis points. (For an explanation of the Fed rate, see our previous Research Weekly.) What impact will this rate increase have on Utahns?
Many assume we will see immediate increases in mortgage rates, given the Fed rate influences loan rates, but mortgage rates have already been increasing recently—partly in anticipation of the Fed rate increase and partly due to the strengthening housing market and economy. It is therefore not likely we will see a noticeable change in the short-run for loan rates. What this increase does signify is the direction we can expect rates to move in the long-run; as the economy continues to improve, the Fed will continue to increase rates and we will see those rate increases passed on to consumers.
In Utah, real estate has been booming. Home prices have been increasing and the Fed rate increase will eventually contribute to the expense of purchasing a home in Utah. But Utah has also seen excellent job growth (currently #1 in the nation), increasing wage growth, and shrinking unemployment. Utah also has a cost of living below the national average allowing it to absorb the increase better than many other states. This is one more reason why Utah continues to be an ideal place for a growing business or corporate relocation.
Fed Rate Increase Summary:
- Bonds will likely yield lower returns in the short-run, as higher rates will drive bond process down
- Stocks will likely steady in the short-run
- Loan rates will remain steady, or slightly increase
- In the long-run, returns on bonds and stocks should improve, and loan rates will increase to a stable level