Is the Fed Going to Raise Mortgage Interest Rates?
The Interest Rate Guessing Game
Seldom does a day go by without some guru offering his or her prediction on when the Fed is going to raise rates. They all come with scholarly theories supporting their prediction. It sounds like a fun game. I want to play, but I’m not sure what the object of the game is.
By “interest rate”, I assume the gurus are talking about the Federal Funds rate or the discount rate. The chart below from the St Louis Fed shows that the Federal Funds rate has been practically at zero since 2008. This rate has never been so low for so long, rendering it an inconsequential monetary policy tool for years. Aside from representing a symbolic gesture, does it really matter whether the Fed Funds rate is at zero or at zero plus 25 basis points? Is there any chance that the FOMC will ever raise the rate to, say, 3%?
Effective federal funds rate since the 1950s
The following chart, also from the St Louis Fed, shows the asset side of the Fed’s balance sheet. While the Federal Funds rate was kept at zero, the Fed went hog wild and increased its balance sheet from less than $1 trillion in the beginning of 2008 to about $4.5 trillion today.
Total assets held by the Federal Reserve
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