Home Loan Rates May Rise Sooner Than Expected

Federal Reserve Chairwoman Janet Yellen said in testimony Tuesday that the Fed may need to raise interest rates sooner than expected, but it all will hinge on the labor market.

“If the labor market continues to improve more quickly than anticipated by the Federal Open Market Committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned,” Yellen testified to the Senate Banking Committee on Tuesday. On the other hand, “if economic performance is disappointing, then the future path of interest rates likely would be more accommodative than currently anticipated.”

Recently, the unemployment rate has fallen rapidly, reaching 6.1 percent in June. But wage growth has remained weak, Yellen noted. Also, the housing market remains sluggish, which she said could slow the economic recovery.

“The housing sector has shown little recent progress,” Yellen testified. “While this sector has recovered notably from its earlier trough, housing activity leveled off in the wake of last year’s increase in mortgage rates, and readings this year have, overall, continued to be disappointing. The recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery.”

Source: “Yellen: Economy Uncertain, Housing Disappoints, and Rate Hikes Are Coming,” HousingWire (July 15, 2014) and “Yellen: Fed May Move Sooner if Labor Market Keeps Surprising,” The Wall Street Journal (July 15, 2014)