How mortgage rates may be influenced by the next Fed chair

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On Thursday, President Trump will announce his nomination to head the Federal Reserve. This is important because the person he selects will have an influence on the wealth of home owners and buyers in the years to come. Rumors and speculation have been circulating around by several news organizations that Jerome “Jay” Powell, Federal Reserve Governor since 2012, is Trump’s choice for Fed chair. If this is true, Powell will replace current Fed chair Janet L. Yellen whose term expires next year. Powell would represent a relatively moderate choice for Trump, and while not as dovish on monetary policy and financial regulation as Ms. Yellen, he is not considered to be as radical as other individuals under consideration such as Kevin Walsh and John Taylor. He has steadily supported Ms. Yellens approach, and so it is expected that he would be unlikely to attempt significant changes in the Fed’s course.

How mortgage rates may be influenced by the next Fed chair

Consequentially, mortgage rates are affected when the Fed and its chair increases or decreases short-term interest rates. When the Fed hikes the Fed funds rate, it often triggers an indirect increase in mortgage rates. Yellen has been a supporter for gradual rate increases, which in recent months have caused slight changes in to the interest rate in which mortgage borrowers pay. It is still uncertain whether the trend will continue after her successor takes over. Furthermore, raising the interest rates too aggressively would send rates higher – that can hinder some buyers and affect the math on what they can afford to buy.

Nevertheless, the Fed chair does not act alone and he or she will be just one of 12 members of the Federal Open Market Committee that make decisions pertaining to monetary policy. Although the housing market is indirectly affected by their actions, it is not a primary directive of the agency. The Fed is primarily concerned with inflation and the labor market.

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