Chicago's Mortgage Choice - April 21, 2015 Real Estate Report - Are The Markets Moving On?

The Federal Reserve Board has said it again and again. They are raising rates this year. While we still don't know at what meeting the increase will come, the markets have had plenty of time to get used to the fact that rates are going up. So now we find that the markets are now obsessing about what comes next after the Fed fires its first salvo. When will the second move come? How far and how fast will rates be ratcheted up? For their part, the Fed is trying to calm the markets in this regard. For example, Chairwoman Yellen last month made it clear that there will be plenty of notice to the markets before the first increase and that the Fed will not be "impatient" with regard to their moves because the economy is not where it needs to be --- "If underlying conditions had truly returned to normal, the economy should be booming," she said. Investors are anxious about the Fed raising interest rates later this year for the first time in about a decade. But Yellen continues to strongly hint that the Fed won't push interest rates significantly higher anytime soon. (CNN/Money) Periodically, we remind our readers that the Federal Reserve Board directly controls short-term interest rates. When they raise these short-term rates, it does not mean that long-term rates are going up in direct response. It depends upon how the markets perceive the move. The key factor here will be inflation. If the Fed is moving slowly while the economy is heating up and we see signs of inflation, long-term rates could rise faster than short-term rates. If the markets perceive that the Fed is moving ahead of the inflation curve, long-term rates could move more slowly. Keith Stewart 773-529-7000