Mortgage Blog

Interest Rates and the Economy

Mortgage Rates

Yes, Interest Rates are Moving.

You probably already know that many things move home loan rates, and they can rise or fall by large or small amounts. Recently, interest rates rose by just 0.7%. How can such a small number impact the economy? The Bureau of Economic Analysis (BEA) estimated that the GDP growth for the first quarter contracted by 0.7%. If the economy is shrinking, shouldn’t that move rates lower?

Data on retail sales, factory orders, further improvement in the labor market, and unemployment claims give a reason for optimism. These numbers went down for some temporary reasons, such as a rapid appreciation of the U.S. dollar, lower exports, residual seasonality, and labor disputes in the supply chains. Who doesn’t love a good comeback story?

As we know, 60 to 70% of GDP consists of consumer spending on goods and services. This is why weak retail sales in December to February did provide some cause for concern March and May painted a new picture: reassuring increases. It was a positive sign for overall growth. Additionally, continued strength in the job market – the 4.8% increase in pay and benefits- will support consumer spending. Growth in consumer spending will continue to grow through 2016.

Onto interest rates: According to MBA Newsweek, “10-year Treasury yield jumped up over the last few weeks in part because German bond yields have improved, due to signs of growth and increasing inflation in Europe.” In this country, rates are going to remain volatile until the Federal Reserve System (Fed) makes a decision about an interest rate hike. While the interest rate hike is expected to come in September, The Federal Open Marketing Committee (FOMC) says it will remain data dependent, and the rate will increase at a gradual pace. Overall, the U.S. economy is expected to grow by 1.8% this year even with being weighed down in the first quarter.

Few expect rates to skyrocket, but MortgageBite experts are watching things closely.