Interest Rates, Mortgage Rates, Possibly on the Rise?

Coming off the heels of the narrowest confirmation vote in the history of the Federal Reserve, many Fed watchers expect Chairman Ben Bernanke to unveil plans to raise interest rates in the coming year.

Despite being pilloried by many in the public and some lawmakers, Bernanke’s confirmation can be seen a (somewhat underwhelming) vote of confidence for Bernanke’s monetary policies. It also affirms the policy of autonomy of the Federal Reserve from political pressures.

During the recent economic crisis, the Fed took unprecedented steps to alleviate the situation. Short term interest rates were dropped to zero and trillions of dollars were injected into the economy in order to promote lending and save the banking system. As a result consumers have benefited from historically low mortgage rates. Current mortgage rates remain under 5% for many with good credit histories.

Bernanke is scheduled to give his semiannual monetary report to Congress later this month. He will outline the future Monetary Policy of the Fed and many observers feel rate hikes in order to curb inflation are inevitable.

Possible rate hikes are likely at least several months away as the Fed will wait until the economy is on more stable footing before it begins the process of siphoning the excess from the money supply. If it opts to raise rates, the Fed will be walking a tightrope with the hazard of inflation on one side and the risk of crushing the nascent economic recovery on the other side.

It is important to note that interest rate hikes are far from a sure thing. There are many factors, such as downturns in the housing market or increases in unemployment that could cause the Fed to change course.

The important takeaway is that despite the uncertainty about the near future, it appears the Federal Reserve intends to raise interest rates. The current historic nadir of mortgage rates will not remain for much longer, which makes now a better time than ever to refinance your current mortgage or to purchase a new home.

For more information on Bernanke’s Confirmation and the future of interest and mortgage rates, check out these recent articles from the New York Times and Wall Street Journal.