Interest Rates

There was an article via Business Insider, originally from Reuters last week that's main premise is that the decline in oil prices this year has made the Federal Reserve more determined to raise interest rates around mid-year.  You should know there's probably been more ink spilled debating when interest rates will rise over the past three years than any other financial topic.  Most of Wall Street has been dead wrong in terms of the timing when this would occur.  Most economists felt that rates would rise in 2014.  Instead they declined.

I have no better insight on when rates will rise again then the rest of my compadres in the business.  I know they will at some point and while I think there's a higher probability that the markets will initially throw a fit when it occurs, I think that once the dust settles investors will believe that slightly higher rates will confirm that the US economy has entered a more sustained and even growth phase.  If that's the view then it ought to be positive for stocks down the road.  

However, there's one part of the market that does see the longer term benefit of lower rates and that's the mortgage market.  Chart of the Day took a look at this last week.  Here's their chart of mortgage rates.

The result of this most recent decline is a rise in mortgage applications.  Housing is a huge multiplier for the economy as the purchase of a home usually is often accompanied by purchases of appliances, furniture, remodeling etc.  A pick-up in the moribund housing market could be a definite boost to the economy.  Mortgage activity has sagged in the past when rates have gone up and it wouldn't surprise me if the Federal Reserve takes this into account when deciding on rate increases.

Interest rates are going to go up at some point.  I think it will be viewed longer term as a positive but let's not be so quick to assume this is a done deal as soon as some are now expecting.  All those young folks trying to buy homes might appreciate interest rates at these low levels for a longer period of time.