Fed interest rate increase will have little effect on market

There are days when we lose our capacity for telling the difference between hype and reality with the Fed interest rate. The day the Federal Reserve raised its funds rate to a quarter of a percentage point, from zero, was one of those. I had an annual doctor’s visit and had taken a sick day, though it also involved two Town by Town visits for future articles and a telephone interview. As I waited for the doctor, I trolled the Internet for any news about the expected Fed decision. I was greeted with gloom-and-doom headlines about the impact of the increase on 2016 home sales. At the same time, we were in the middle of a warm spell, but weather forecasters were anticipating the arrival of a strong cold front, followed by a day or two of more seasonal temperatures in the 40s.

“There should be minimal impact on the rate for a 30-year fixed-rate loan,” said Mark Zandi, chief economist at Moody’s Analytics in West Chester. “Fixed rates are tied to long-term Treasury yields, which have already discounted a Fed rate hike,” Zandi said.

It has been his experience, he said, “that after an initial reaction to the Fed interest rate, the markets will settle down, knowing this rate is the new normal.”

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