The Fed is Worried about Higher Inflation

The Fed Meeting Minutes last week definitely rattled both stock and bond investors. Here’s why—

• Several members are concerned that inflation may exceed their 2% target rate for a period of time.
• A few members noted that the economy is stronger this year than they expected it to be. It’s amazing what tax cuts can do.
• The Fed will keep gradually raising short-term rates. Expect 3 more ¼% rate increases over the next year.
• James Bullard said last Thursday that the current Fed Funds Rate is about right in his opinion. Unfortunately, he is in the minority on this.

Thus, expect mortgage rates will continue to rise over the next year unless we see inflation cool off. And remember a 1% mortgage rate increase is equal to an 11% price increase. So, if you have a client who thinks home values will drop next year, they will most likely pay MORE for a house next year because of higher interest rates.