Who can actually dictate interest rates? You might be surprised to find that the President of the United States doesn't have much power in this arena. Prospective new home buyers and refinancers alike should monitor the interest environment and this segment by Motley Fool analysts Gaby Lapera and Nathan Hamilton can help them do that. Readers can head over to the Motley Fool's mortgage site for more information on comparing mortgage rates.
A full transcript follows the video.
This podcast was recorded on Feb. 27, 2017.
Nathan Hamilton: I think it's important to understand what the President has an impact on, and what they influence, and what they probably don't have a direct impact on, specific to mortgages. Mortgages are somewhat based on what the Fed does. President Trump, any president before and any president in the future, doesn't necessarily say what those rates are going to be. But, during the Trump presidency, the Fed has already come out and said, in 2017, there are likely going to be two to three more rate increases. This is on top of what happened in December with the rate increase. So, if you're looking at refinancing, if you're looking at buying a new home, now might be a good time to at least look at the refinancing side of it, because rates may increase in 2017 during Trump's presidency. He can't, essentially, issue an executive order and say, "We're going to increase/decrease mortgage rates." That's not necessarily something he can influence.
Gaby Lapera: Yeah. A few things to unpack there. The Federal Reserve Board, the people who decide whether or not those interest rate increases, [is], in theory, an independent body. So, that's why Nathan was saying that Trump can't really affect that directly. Additionally, the interest rate increases are part of a long trend that we've been seeing with the recovery of the economy. That's why interest rates haven't been pushed up super high in the past few years. It's because they have been waiting until they saw the signs.
Hamilton: Yeah, until the economy improved quite a bit, or there were signs it was going to improve quite a bit.
Lapera: Exactly. The Fed is really interesting. It's kind of like this mysterious shadowy body. I know that I've said this a few times, but if we had a little magic globe or crystal ball that we could look into, that would be great. But they do try and signpost like, "Yeah, we're probably going to raise them up/we're not going to raise them." And they have been saying, "Things look pretty good so far, we think we're going to raise them." They're not going to be aggressive. That's something to remember, they're not going to push it up by 2% points, it's going to be basis point increases.
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