Real Estate Finance Alerts

Should you lock your rate before next week's FED meeting?

The FED meets next week and will issue their statement Wednesday at 2:15 ET.  While the market does not expect a rate HIKE, odds are only 10%, the focus will be on any changes to the statement setting expectations for future rate actions.  After several speeches by FED Chairman Bernanke indicating a shift to inflation risks indicating HIKES, several recent newspaper articles suggested the FED would HIKE rates later than expected causing confusion in the markets.

The end of the rate cut cycle is over and interest rates will continue to rise as the markets digest new information regarding the timing and extent of FED rate HIKES.  Futures now indicate just over 40% odds the FED will HIKE rates by 25 basis points at the August 5th FOMC meeting; see the probabilities chart here.   Futures indicate the FED will hike rates between 50 and 75 basis points by the end of 2008.  Several weeks ago, the markets indicated the FED would not raise rates 75 basis points until the end of the first quarter 2009.

You should lock your rate today or over the weekend to eliminate the risk of a rate spike following the FED meeting.  Additionally, barring any significant news, rates tend to rise into a FED meeting as a hedge against the statement causing a spike in rates.  Furthermore, rates are moving higher with a rising rate long term trend.  If you plan to refinance or if you are on an ARM, you should take the time now to determine at what rate a refinance makes sense for you.  Call or email for a free, no obligation review of your Target Rate.