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Fed rate hike will backfire

Fed rate hike will backfire

The Fed rate increase is an overrated turkey.

Whether you have an adjustable-rate mortgage or a home equity line-of-credit, do not fret about mortgage rates going up when the Federal Reserve raises short-term interest rates one-quarter point on Dec. 16. This will be short-lived.

No doubt things are a million percent better than they were during the height of the Great Recession, especially here in Orange County. But we’re still ailing on many levels. The rate increase is medicine we are not ready for.

Consider the employment participation rate, which is the number of people who are either employed or actively looking for work. According to the U.S. Bureau of Labor Statistics, the October participation rate of 62.4 percent is the lowest level in nearly four decades.

Consider the promising, yet meager wage gains that the American worker has enjoyed, only to be eaten up by, at minimum, higher health care premiums and utility charges. Think there’s a panacea of real disposable income out there that’s going to drive up inflation? Think again.

Consider The Wall Street Journal’s recent headline, “Quiet U.S. Ports Spark Slowdown Fears,” which explained a recent 10 percent drop in imports being shipped. That’s the first time in 10 years. And, it comes at high shipping season. And, it’s very consistent with other recent news accounts of rising inventories at retailers.

“The Fed’s narrative is at odds with reality. Demand is the issue. There is no demand,” said Christopher Whalen, senior managing director at New York-based Kroll Bond Rating Agency.

Political expediency will win the day on the matter of a rate increase, only to see a consumer spending pullback by the first quarter of 2016.

Lenders are getting lit up with calls ahead of the December Federal Open Market Committee meeting. If you are one of the many mortgagors who have your loan officer on speed dial because of RO (rate obsession), erase that anxiety from your mind and quit calling.

Mortgage rates are going to fall right back down as a result of this premature Fed move because that same political expediency is going to work for you after the economic slowdown.

We’re coming up on a big election cycle in less than one year. No matter your political party, all incumbents want you feeling good about them as part of their effort to get re-elected. That’s no turkey talk. That’s political reality.

Mortgage broker Jeff Lazerson can be reached at 949-334-2424 or lazerson@mortgagegrader.com. Twitter: @mortgagegrader_

The Orange County Register – News Headlines : Real Estate News