Connect with us

Hi, what are you looking for?

The American Genius Real EstateThe American Genius Real Estate


Will the Federal Reserve hike interest rates again in 2016? A consensus is forming

Interest rates were bumped up at the end of 2015 after years and years of no change – so will 2016 be a year of more increases? It’s looking likely.

federal reserve

As a little going away present for 2015, the Federal Reserve raised rates in December. Although they hadn’t been touched for many, many years, it was no surprise to economists. Now the question is, will the Fed raise rates in 2016, and if so, by how much?

Most market analysts are forming a consensus, expecting three to four hikes in 2016. Let’s discuss.

Slowly but surely the hikes will roll in

According to Tim Duy’s Fedwatch, the Federal Reserve “will to [slowly] hike rate. Economic conditions will be sufficient for the Federal Reserve to justify 100bp of rate hikes in 2016, although the Fed will not want to appear mechanical in its normalization process. Thus, they will likely find themselves hiking every other meeting beginning in March 2016.

Duy goes on to say that the Federal Reserve will be slow to begin the process of normalizing the balance sheet. Although they will be fully engaged in that process by the middle of the year. That conversation will take on more urgency if they have difficulty controlling short rates with their new tools.

The minutes of the December FOMC meeting were released in the first week of January.

Fred Duy maps out that “regarding the medium-term outlook, inflation was projected to increase gradually as energy prices and prices of non-energy imports stabilized and the labor market strengthened.” Furthermore, comments Duy, “taking into account economic developments and the outlook for economic activity and the labor market, the Committee is now reasonably confident in its expectation that inflation would rise, over the medium term, to its 2 percent objective.”

Advertisement. Scroll to continue reading.

A small move, but a hike nonetheless

According to the Federal Times the hike represents a very small move. “It will be reflected in some changes in borrowing rates. Longer term interest rates, loans that are linked to longer term interest rates, are unlikely to move very much. The impact of a single quarter-point interest rate hike is virtually inconsequential.” That said,  this [hike] could be the start of a series of interest rate hikes, and the cumulative effect of those could be significant over the course of the next couple of years.

What of mortgages?

Of particular interest is mortgages. The FT points out that “the rules for mortgages are roughly the same as those for student loans: if you have a fixed rate mortgage, you needn’t worry. If you have yet to take out a mortgage but plan to do so in the future, you will receive a slightly higher rate than you would have if you had locked in your rate.”

Conversely, if you or your clients have (or are considering) an adjustable-rate mortgage, expect the rate to go up.

The Fed will remain cautious

Calculated Risk’s Bill McBride notes, “If inflation picks up, then four rate hikes is probably “in the ballpark”. If inflation stays low, then we will see fewer rate hikes.”

That’s about what our team is hearing from various sources. McBride adds, “I’ve seen several people arguing the Fed will be cutting rates by the end of 2016 – I think that is unlikely. Instead I think the Fed will be cautious – and they will not want to reverse course. Right now I think something around three rate hikes in 2016 is likely.”

It’s not just black and white

The decision to raise rates probably seems easy on paper. But actually implementing those rate is a bit more complicated. As always, taxpayers are the ones that feel the brunt of change.


Advertisement. Scroll to continue reading.
Written By

Nearly three decades living and working all over the world as a radio and television broadcast journalist in the United States Air Force, Staff Writer, Gary Picariello is now retired from the military and is focused on his writing career.


The Daily Intel
in your inbox

Subscribe and get news and EXCLUSIVE content to your email inbox.




Investors are not seeing eye to eye with the Federal Reserve when it comes to the future of inflation and a possible recession.


(ECONOMIC NEWS) As the Federal Reserve increases rates today, what will happen to home sales, and what must Realtors know?


Interest rates have been a concern for potential homeowners, investors, and lenders for quite some time, but will higher interest rates result in lower...


Interest rates are gradually going back up, which confirms that unemployment is low, gas prices are low, debt is low and wages are picking...

The American Genius' real estate section is honest, up to the minute real estate industry news crafted for industry practitioners - we cut through the pay-to-play news fluff to bring you what's happening behind closed doors, what's meaningful to your practice, and what to expect in the future. We're your competitive advantage. The American Genius, LLC Copyright © 2005-2022