How the Fed Rate Hike Will Affect the Nashville Market?

The Federal Funds Rate is the interest rate banks pay to borrow money overnight to meet their required minimum deposit amounts.  This ensures that every bank has the proper amount of cash to conduct business. 

This interest rate is a cost of doing business as a bank. Like any business, this expense is passed onto their customers in the form of higher rates and fees.  The increase was fairly small, 25 basis points or ¼ of 1%.

So why all the fuss?

In case you were wondering, there is nothing to worry about in the short term and here’s why.

  1. The market has had several months of advance warning so any major price increases have already been factored into the mortgage and stock markets.   The net result for the mortgage market after the news today was a slight increase in the average rate.  We typically see larger fluctuations in rate this time of year due to the lower demand for mortgages.

  2. Janet Yellen, Chair of the Federal Reserve, said that they expect economic conditions will warrant only gradual increases in the Federal Funds Rate going forward.  They also committed to continue to hold Mortgage Backed Securities and Treasury notes.  The Fed is not going to be in a rush to further tighten monetary policy and slow economic growth.

  3. The Federal Reserve has held this rate just above zero for seven long years.  In recent history, his is an unprecedented amount of time for The Fed to not change the rate.  This rate is one of the main tools used to boost business in a recession because it makes borrowing cheaper.  If we hit another recession without being able to lower rates, it could be devastating to the economy.

  4. Rates are still at historic lows.  80+ people per day are moving to Music City.  Jobs are created here daily.  The Nashville Economy is a fire that can’t be extinguished with such a small rise in interest rates. 

You might hear the mega-agents tell you to take action now because you are losing significant purchasing power (or some other exaggerated claim). 

Don’t believe the hype! 

Questions?

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