Fed Boosts Key Interest Rate (updated with analysis)

From SFGate,

The Federal Reserve on Tuesday boosted a key interest rate to the highest level in five years as new Chairman Ben Bernanke followed the Alan Greenspan inflation-fighting formula.

The action, the 15th consecutive quarter-point move, left the federal funds rate at 4.75 percent, its highest level since April 2001.

Fed officials, who were holding their first interest rate meeting under Bernanke, left the door open for further rate increases although private economists believe only one or two more rate hikes are likely.

But more important than the expected rate hike were Bernanke's comments...

In its statement, the Fed sounded at an upbeat note about the current business climate, saying "economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace."

The statement retained language used last time that "some further policy firming may be needed." That language is seen by financial markets as signal that further rate hikes could occur.

UPDATE: Monica DiPerna from Guarantee Mortgage sums up today's Fed meeting and the associated rate changes...

We have had re-pricing all day long...the lenders really were affected by Bernanke basically not discussing any chance of ending rate hikes...so today the 30 year fixed ended at 6.625-6.75% for most lenders. A 5 year fixed is now approximately 6.00-6.25%.

The increase sent stocks, which were trading modestly higher before the announcement, into the red. Bond prices tumbled, pushing the yield on the 10-year Treasury up to 4.78 percent. Bond prices and yields move in the opposite direction.The Fed also said that inflation expectations remain contained but added that recent increases in the price of oil and other commodities "have the potential to add to inflation pressures.

Bernanke really showed his true colors today...he appeared more hawkish than during his hearings...very interesting..it could be that the last couple of months there has been more inflationary news out...

But we should always remember, that the best product when the 30 year fixed was at 8.5% over 5 years ago was the Adjustable Rate Mortgages...these products will become more popular if the 30 year fixed hits 7.75%...Right now though, many people are calling to lock their loans in on a 30 year interest only or extend their adjustable for 5-10 years...The people with adjustables should really consider locking their loans in before the fixed period of their loan turns adjustable...

Specifics for a $600,000 mortgage (this week vs. last week):

30 year fixed at 6.625 payment $3,820 v.s. 6.5 with a payment of $3,771 last week

5 Year fixed at 6.125 payment $3,627 vs. 5.875% with a payment of $3,531 last week

The Federal Reserve... Not just for adults anymore! [SFHomeBlog]