Although we don’t know exactly when rate increases will appear, many observers expect them to start occurring in 2015. Continued job growth eventually will result in higher mortgage rates, say many economists.
We’re more likely to experience tighter financial conditions once there’s more evidence America’s economic expansion is healthy.
Already the Federal Reserve has stopped its aggressive practice of growing its portfolio with monthly bond purchases. Such actions have helped keep home loan rates low by boosting demand for bonds backed by mortgages.
Less official support for low rates suggests they’ll eventually rise. Especially since falling unemployment will create pressure to increase wages. A shortage of workers will force companies to pay more for the staff they need.
Unemployment reached ten percent in 2009, and now is below six percent. Federal Reserve economists believe wages will start rising once joblessness hits 5.5 percent.
Higher wages will boost inflation as firms raise prices to make up for larger payrolls. To slow down this spiral of higher prices, the Fed then is expected to increase the rate it charges for short-term lending to banks. Eventually that will temper economic activity by pushing up the cost of borrowing for both households and growing companies.