As widely expected, US Fed concluded its September FOMC with a rate hike decision – third rate hike this year that brings the federal funds rate past 2% to a range of 2.00-2.25%.
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The Fed has also for the first time removed the word “accommodative” from its policy statement which some traders interpret as the end of the its rate hike cycle that started in 2015 which has seen it moved up the rate 8 times since. However, Fed chair Jermone Powell clarified that although monetary policy is no longer accommodative, it will proceed inline with expectations and the Fed maintains one more rate hike in December, three more next year in 2019 and, in a vote of confidence in the US economy, signaled it sees three more years of economic growth.
Here are some key highlights of September FOMC statement:
- Housing spending and business fixed investment registered strong growth
- The committee forecast the funds rate to hit 2.4% by end of 2018, 3.1% by end of 2019, and 3.4% by end of 2020
- GDP grew by at the fastest rate of 4.2% in 2ndquarter
- Amidst strong job gains, unemployment rate will fall further from 3.9% to 3.7% by end of 2018
- Wage growth also hit a high of 2.9% in the month of August
- Core inflation will hold at Fed’s targeted 2% this year and is expected to rise up only very gradually
With the removal of the accommodative stance by Fed in this FOMC, some believe US Fed will now slow down its pace of rate hikes especially when inflation continue to remain low. However this does not seem to be so going by how Fed is maintaining one more rate hike in Dec and three more in 2019. However, the committee has made clear its forecast does not factor in any fallout from the current trade spat from the Trump administration.
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Here in Singapore, we also stay on track with our forecast that SIBOR would cross 2% by end of the year. We think the pace of rate hikes might slow when US Fed hit the long-term neutral rate of 3% by end of 2019. With rising rates in US, lenders in Singapore especially local banks have been revising their base mortgage lending rates over the past months. The pressure is also on for banks to revise their fixed rates after this month and we may finalize see the last of sub-2% fixed rates as the last few remaining foreign lenders up their rates (the likes of Bank Of China, CIMB, etc). Already local banks have announced 3-year fixed rate going up to 2.38% with effect from October.
For those keen to refinance home loan or with lock-in expiry within the next 6 months, there is no better time to speak to us than now, as we also offer a zero-cost refinancing solution to our clients (for loan above $500,000). You will have nothing to lose, not even a repricing admin fee to pay, when you choose to refinance your home loan through MortgageWise today!
Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest developments in the industry, providing useful mortgage tips, and making sense of rate movements. We seek to build trust with clients over the longer term instead of doing product-peddling for quick one-time deals. That’s why we always present “whole-of-market” perspective including home loan packages that some banks do not pay us.