June 13th, 2018 – It comes as no surprise, with the American economy booming, that the US Fed is looking to moderate that growth by raising interest rates. The desire to return to more normal levels of interest rates between 3% to 5% has been desired by the central bank for some time, the situation just hasn’t been quite right. Now with a high-level of optimism that time has come. The US is at a record low point for unemployment, with many employers struggling to find qualified workers to fill available positions. Annual inflation has climbed to 2.8% and is consuming a lot of the increases workers are seeing in their take-home pay.
New Fed Funds Rate
Today Fed Chairman Jerome Powell announced another 0.25% increase to the key benchmark overnight rate, bringing it to 1-3/4 to 2 percent. . Expectations are for at least one and quite possibly two further increases later this year.
Impact on Canadian Mortgage Rates
The Fed rate immediately impacts sentiment of traders in the bond market – both in Canada and the United States. This is where our banks source much of the capital used in mortgage lending. Not surprisingly the Bank of Canada will likely follow the US lead and formally raise our bench mark rate similarly at the next planned announcement date. These events will definitely be felt in higher mortgage rates being offered to consumers. It is a reminder that now is the time to be buying property as rates will continue to move higher over the next couple of years. If you are in a variable rate mortgage, you should be considering the benefits of locking in to a fixed rate.