Chicago's Mortgage Choice - August 25, 2015 Real Estate Trends - The Dollar, Oil Prices and Rates

For months the markets have been totally focused upon how many jobs are added each month and how this might bring us closer to increases in rates. It is obvious that every month of more than 200,000 jobs added gets us closer and closer. But employment is not the only variable affecting the Federal Reserve Board's thinking. This month when China devalued their currency in a move they said would let market forces set the value, one of these variables was front and center. This variable is the value of the U.S. dollar. Why do we care about the value of the dollar? In the past year, the value of the dollar has gotten considerably stronger than other foreign currencies. This is actually good news because our economy seems to be getting stronger while others languish. To a consumer a stronger dollar is good because it lowers the cost of goods bought overseas and even makes vacations cheaper. It is bad for U.S. companies that do business overseas because our exports become more expensive. So a stronger dollar is a double-edged sword for our economy and thus the Federal Reserve Board. Overall, a strong dollar is good because it lowers the risk of inflation. And inflation is exactly what the Fed is looking to protect us from when they raise rates. With oil and gas prices going down and the dollar getting stronger, the risk of inflation is going down. Plus, the risk to our economy is rising and the recent drop in our stock market certainly reflects worries concerning this risk. The question is-will these factors convince the Fed to wait longer before they raise rates? At least for now, we have the best of all worlds -- a recovering economy, low rates, low gas prices and cheaper vacations to Europe! Keith Stewart 708-925-2562