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O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ORIGINATION 44 | TH E M R EP O RT THE LATEST It's Official: The Fed Finally Raises Rates The announcement came as the Fed wrapped its eighth and finalFederal Open Market Committee meeting of 2015. T he Federal Reserve made the long-awaited, much-anticipated an- nouncement last month that federal funds target rate will increase by a quarter of a percent- age point from its near-zero level where it has been since 2006. The federal funds rate is now one-fourth to one-half percent, according to the FOMC. After a widely-expected rate increase did not happen at the September FOMC meeting, the Fed stated that "In determin - ing how long to maintain this target range, the Committee will assess progress—both realized and expected—toward its objec - tives of maximum employment and 2 percent inflation." Another FOMC meeting came and went in October, albeit with much less fanfare than the September meeting, without the Committee raising the federal funds target rate. The Fed's decision to raise short-term interest rates took into account, "a wide range of infor- mation, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international devel- opments." In what many analysts and economists saw as the final piece of the puzzle, the November employment summary released by the Bureau of Labor Statistics in early December reported 211,000 jobs added in November, an unemployment rate of 5.0 percent, and an average monthly job gains of 218,000 for the three- month period from September to November. "This action marks the end of an extraordinary seven-year period during which the federal funds rate was held near zero to support the recovery of the economy from the worst finan - cial crisis and recession since the Great Depression. It also recogniz- es the considerable progress that has been made toward restoring jobs, raising incomes, and easing the economic hardship of millions of Americans. And it reflects the Committee's confidence that the economy will continue to strengthen. The economic recov - ery has clearly come a long way, although it is not yet complete." Said Fed Chair Janet Yellen. Housing and mortgage finance experts and executives weighed in with MReport on how this increase in rates will affect their specific industries over the next year. "I applaud the Federal Reserve for making the long overdue decision to raise the federal funds rate," said Ed Delgado, Five Star Institute President and CEO. "The housing market and the overall economy have continued to show signs of improvement throughout 2015. As the year comes to a close, this decision represents a strong statement of faith that the long- term fundamentals of the market point to a period of growth and sustainability. The cause of home - ownership is well served by the Fed's move today." Dave Gorman, Regional Sales Executive at Bank of America not - ed that the rate increase will "min- imally impact homebuyers" and "reflect a strengthening economy, better job outlook, rising wages, increased consumer confidence— factors that help increase demand for housing." "We understand the natural concern among consumers, par - ticularly prospective homebuyers, about slightly higher borrowing costs," Gorman explained. "With rates already at such low levels, incremental increases shouldn't take average mortgage rates into the territory we've seen them in the past for some time." Fannie Mae SVP and Chief Economist Doug Duncan described the Fed's announce - ment about the 25-basis point rate increase "dovish." "This is one small step on an overdue journey for the Fed," Duncan said. "It should not be any surprise that markets were unsettled prior to the September meeting (rate increase expected) and to the current meeting, given the nature and magnitude of the central bank's intervention in the economy. Market expectations of future Fed actions will likely continue to be volatile given the deviation from traditional mon - etary policy tools and the Fed's outsized balance sheet. Today's dovish statement reinforces our expectations of a gradual pace of tightening. The comment on the reinvestment policy suggests that any shrinking of the balance sheet would not begin until perhaps a year from now. We expect three more hikes in the fed funds target next year, with the 30-year fixed mortgage rate rising from 3.9 percent this quarter to 4.1 percent a year from now."