Why you can expect mortgage rates to creep toward 5% this summer

  • If the Fed continues to push up the cost of money, sooner or later long-term rates will rise also.
  • There is no rule defining the relationship between the cost of money as set by the Fed and long-term rates, but there is a persistent pattern that ends in recession -- still years away, with any luck.
  • Three weeks ago, the Fed began telegraphing to markets that it was raising rates today, and markets overreacted a bit, thinking the Fed might accelerate its rate hikes in 2017.
  • Instead, the Fed left its forecast for three total hikes this year unchanged, and left the levels in future years unchanged also. So markets adjusted.

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First, may as well get the embarrassing part over: the Fed raised its rate today, and mortgage rates fell. “Fell” is a bit of an overstatement, the decline no more than a fractional point — a large loan, fine credit, 80 percent, 30-year fixed still sits between 4.375 percent and 4.50 percent.