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VA Rates to Rise This Fall?

By: Grant Moon 08/22/14 10:50 am

The Federal Reserve Board members concluded their annual meeting at Jackson Hole, Wyoming this week and if you’ve been paying much attention to recent Fed comments you know that there are members making more noise about raising rates sooner rather than later. The Fed’s current purchases of U.S. Treasuries and mortgage bonds are winding down from a whopping $85 billion per month to zero as of late October. There have been recent comments from Fed members about the Fed Funds rate needing to be raised but overall the Board wants to look at some more data before making any such decisions.

This week however just might have moved some of the Fed members from one side of the camp to the other as July home sales surprised most economists with a stronger than expected sales surge of existing homes, at an annual rate of 5.15 million units, the fourth straight month of increases and the biggest jump since September of last year while home prices have risen for the 29th straight month.

Second quarter GDP came in at a 4.00% increase although many are skeptical of that number and are awaiting revisions. Still, GDP is forecast to show a 3.00% gain overall for 2014. In the past, the Fed has stated that the unemployment rate had to hit a particular number before raising rates but has backed off that comment. It may not feel like we’re in a recovery but the fact is that we are in a slow-growth mode. We’re definitely not in a boom.

All that said, if, and this is a big if, geopolitical events begin to tone down and investors suddenly realize that the Fed’s pumping is coming to an end then rates will begin to rise. 30 year VA rates have been below 4.25% since mid-May but as we head toward fall, rates should creep back up. In fact, we may be witnessing rates below 5.00% for the very last time.

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