Market Update

The global economy has impacted what was predicted to be a rise in interest rates in 2016. Last December was the first time since 2006 that the Fed raised the federal funds and discount rates. Thereafter it was assumed that a trend was in store for 2016, however as the dow tumbled 1,900 points in January, coupled with concerns over the slowdown in China, uncertainty resulted within the manufacturing sector, creating a stagnant interest rate environment.

Along came Brexit. The U.K. voted to leave the EU in a referendum at the end of last month. The news rocked global financial markets, which did not anticipate this measure to win. The S&P predicted that the U.K. will barely escape a full-fledged recession caused by Brexit, as the downside risks are numerous. Euro zone economic growth is expected to be unstable throughout 2017 and 2018.

U.S. stocks plummeted following the U.K.’s decision to pull out of the European Union. With uncertainty throughout the global economy, the Fed is not convinced that the market can support higher interest rates. Contrary to earlier forecasts, interest rates may drop even lower than record breaking lows.

On a positive note, the stock market rebounded following two days of panic after the Brexit announcement. While referendum may have adverse affects on rates in the coming weeks, many economists believe that this will be short lived. The chief economist for the Mortgage Bankers Association, Michael Fratantoni has cautiously predicted that by December 2017, interest rates will rise to 4.0%, on par with where they were in 2009.

by Jeff Glenn