Today at 2:00 and then again at 2:30 the Fed will address 320 million Americans to let them know that the interest rate on their credit card is going up. The Fed of course has control over the Fed Funds Rate, which directly affects the Prime Rate (PR=FF+3.0). Though that’s the only rate that they control directly, raising the cost of borrowing money overnight indirectly impacts the cost of borrowing money longer-term too. Generally speaking, the longer you want to string out your payments, the higher the rate you are going to pay. The converse is also true: the longer the time period that you are willing to let someone use your money, the higher the yield that you will receive as an investor. That’s called the yield curve, and for the last nine years it’s been flatter than usual–mostly because, here in the U.S. anyway, 0% is as low as we went on the short end. So as the Fed continues to raise their rate, all other yields will naturally follow suit, heading north in an untidy, much speculated and well publicized fashion. In fact, since a 0.25% bump is a given today, longer-term rates started coming up a few weeks ago. We’ll see what happens in a few hours.
As I see it, there is no reason that Janet Yellen & Co. will not raise rates today. The economic data released this morning has been just as jolly as it has been all month. The NAHB Housing Market Index jumped to it’s most optimistic position in the last 12 years. Retail Sales are up 0.2% even without transportation figured in. Empire Manufacturing rose higher than anticipated, and the Consumer Price Index is up 0.1%.
Across the country, Fannie Mae rates average 4.46% and FHA is at 4.25%. I, of course, have loans with lower interest rates than that :).