We have seen a slight increase in rates already this 2015, but it’s expected that we’ll see our first significant hike soon. When the Fed does raise the rates, it will officially be the end to the historically low rates we’ve been experiencing the past 6 years.
While it seems natural to assume that markets tend to do better when rates are lower, our economic history is not as simple as that logic goes. In the past, we have weathered rate hikes very well, with only one outlier in the early 80s to temper inflation. While there is some volatility to be expected in financial markets at such an announcement, it is an initial reaction that will inevitably calm. Rising rates are typically used to pace economic growth, which is a good sign for the long term.
Once again, the Fed is looking to contain inflation, while our unemployment rate continues to decline and our economy continues to recover. The Federal Reserve aims to encourage employment by keeping the economy growing at a steady pace, not too fast that gaining in wages is lost to higher prices. The hike in rates was predicted sooner, but first quarter economic data has been weaker than expected.
Borrowing costs for consumers of mortgages are expected to remain steady for the near future with slowly rising rates over the next few years as our economy regains it’s full strength. Higher rates signify a strong economic backbone to handle them, which is very beneficial for the long-term.