As we all know and expected the Fed raised rates by .25% this afternoon even after a rash of weaker data on the economy. Retail sales fell by .3% instead of the expected increase. CPI fell as well. Inflation is falling in many sectors and the Fed's key PCE index is down to 1.50% well below the target of 2%.
What gives? Ms. Yellen in her speech post raise told us that yes inflation is below their target but it is only a temporary blip. Hanging on the "Philips Curve" which measures employment as the gauge for inflation instead of the raw data. She also said that the Fed will maintain their rate forecast and balance sheet unwinding later this year. Just because she said it doesn't mean that they will raise again this year. If economic data continues to show a softening economy, it will be very difficult for them to justify another hike this year.
The bond market rallied hard this morning after the data reports. The yield fell as low as 2.10% and post Fed held onto much of their gains to close at 2.12%. The bond market clearly doesn't believe another hike is happening any time soon. The Dow rose to a new record high gaining 46 points to 21,374! Gains by Goldman Sachs and Home Depot led the way. Yes, banks love higher rates. But we certainly don't!
Mortgage rates didn't move much today as banks sat on the sidelines waiting for the aftermath of the Fed. Look for lower rates tomorrow for first lien mortgages but prepare yourself for higher rates everywhere else. The prime rate is now 4.25%. Home equity loans, car loans, credit card rates will all rise.
If you have credit card debt, home equity debt it is now the time to think about refinancing your debt into a new first mortgage. That is the only way to stop the bleed.