As expected, The Federal Reserve Board (the Fed) increased policy rates by a quarter percent at their September meeting. Indicators show they will likely raise rates again at their December meeting. This increase is the third this year and the eighth since 2015. Previously, the benchmark rate was kept at a record low for seven years.
The Fall increase could cause banks to increase their “prime rates,” which are often used to calculate interest on consumer products like credit cards, private student loans, and home equity lines of credit (HELOCs). Adjustable Rate Mortgages (ARMs) may be directly impacted as well.
Fixed mortgages are typically based on long-term rates, which are not directly affected by Fed rate changes. However, Fed policy does influence mortgage rates, which can rise in anticipation of future Fed action. There are exceptions, yet home loan rates will typically follow overall interest rate trends over time.
As for the future, Fed watchers are predicting two or three policy rate hikes in 2019. If trade wars with China temper economic growth, then fewer rate hikes are likely.