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THE FEDERAL RESERVE
AND A POTENTIAL RATE INCREASE
ANDREW LYON
Leader of National Economics and Statistics
and Principal
PwC US
LAWRENCE YUN
Chief Economist
and Senior Vice President of Research
National Association of Relators®
DECEMBER 15, 2015
FEDERAL FUNDS RATE AND FED FORECAST
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Actual (Effective) Fed Funds Rate
FOMC forecast
(Sep 2015)
Source: Federal Reserve Board, November 2015
TREASURY SECURITIES YIELD CURVE, 2014-2015
Source: Department of Treasury, November 2015
Source: Department of Treasury, November 2015
TREASURY INTEREST RATE RANGES
FOR VARYING MATURITIES
MONTHLY PENDING SALES INDEX
LOSING MOMENTUM	
  (Seasonally Adjusted)
70.0
75.0
80.0
85.0
90.0
95.0
100.0
105.0
110.0
115.0
2011 -
Jan
2011 -
May
2011 -
Sep
2012
- Jan
2012
- May
2012
- Sep
2013
- Jan
2013
- May
2013
- Sep
2014
- Jan
2014
- May
2014
- Sep
2015
- Jan
2015
- May
2015
- Sep
Source: NAR
TRIGGER? JUMP IN MORTGAGE RATE
3.00	
  
3.50	
  
4.00	
  
4.50	
  
5.00	
  
5.50	
  
FED POLICY AND MORTGAGE RATE
0
1
2
3
4
5
6
7
8
9
2000-Jan
2000-Jul
2001-Jan
2001-Jul
2002-Jan
2002-Jul
2003-Jan
2003-Jul
2004-Jan
2004-Jul
2005-Jan
2005-Jul
2006-Jan
2006-Jul
2007-Jan
2007-Jul
2008-Jan
2008-Jul
2009-Jan
2009-Jul
2010-Jan
2010-Jul
2011-Jan
2011-Jul
2012-Jan
2012-Jul
2013-Jan
2013-Jul
2014-Jan
2014-Jul
2015-Jan
2015-Jul
Mortgage Rate Fed Funds Rate
NO CPI INFLATION – YET
-3
-2
-1
0
1
2
3
4
5
6
2000-Jan
2000-May
2000-Sep
2001-Jan
2001-May
2001-Sep
2002-Jan
2002-May
2002-Sep
2003-Jan
2003-May
2003-Sep
2004-Jan
2004-May
2004-Sep
2005-Jan
2005-May
2005-Sep
2006-Jan
2006-May
2006-Sep
2007-Jan
2007-May
2007-Sep
2008-Jan
2008-May
2008-Sep
2009-Jan
2009-May
2009-Sep
2010-Jan
2010-May
2010-Sep
2011-Jan
2011-May
2011-Sep
2012-Jan
2012-May
2012-Sep
2013-Jan
2013-May
2013-Sep
2014-Jan
2014-May
2014-Sep
2015-Jan
2015-May
RENTS RISING AT 7-YEAR HIGH
-1
0
1
2
3
4
5
2000-Jan
2000-May
2000-Sep
2001-Jan
2001-May
2001-Sep
2002-Jan
2002-May
2002-Sep
2003-Jan
2003-May
2003-Sep
2004-Jan
2004-May
2004-Sep
2005-Jan
2005-May
2005-Sep
2006-Jan
2006-May
2006-Sep
2007-Jan
2007-May
2007-Sep
2008-Jan
2008-May
2008-Sep
2009-Jan
2009-May
2009-Sep
2010-Jan
2010-May
2010-Sep
2011-Jan
2011-May
2011-Sep
2012-Jan
2012-May
2012-Sep
2013-Jan
2013-May
2013-Sep
2014-Jan
2014-May
2014-Sep
2015-Jan
2015-May
Renters' Rent
CREDIT BOX OPENS?
> FICO New Method
> Fannie/Freddie
•  Lower down payment products
> FHA premiums … lowered
> Portfolio Lending … historic low mortgage
default rates on recent vintages
(2010-2014)
Questions?
Press 1 on your phone
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Economists discuss the Federal Reserve and Interest Rate Increase

  • 1. THE FEDERAL RESERVE AND A POTENTIAL RATE INCREASE ANDREW LYON Leader of National Economics and Statistics and Principal PwC US LAWRENCE YUN Chief Economist and Senior Vice President of Research National Association of Relators® DECEMBER 15, 2015
  • 2. FEDERAL FUNDS RATE AND FED FORECAST 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 Actual (Effective) Fed Funds Rate FOMC forecast (Sep 2015) Source: Federal Reserve Board, November 2015
  • 3. TREASURY SECURITIES YIELD CURVE, 2014-2015 Source: Department of Treasury, November 2015
  • 4. Source: Department of Treasury, November 2015 TREASURY INTEREST RATE RANGES FOR VARYING MATURITIES
  • 5. MONTHLY PENDING SALES INDEX LOSING MOMENTUM  (Seasonally Adjusted) 70.0 75.0 80.0 85.0 90.0 95.0 100.0 105.0 110.0 115.0 2011 - Jan 2011 - May 2011 - Sep 2012 - Jan 2012 - May 2012 - Sep 2013 - Jan 2013 - May 2013 - Sep 2014 - Jan 2014 - May 2014 - Sep 2015 - Jan 2015 - May 2015 - Sep Source: NAR
  • 6. TRIGGER? JUMP IN MORTGAGE RATE 3.00   3.50   4.00   4.50   5.00   5.50  
  • 7. FED POLICY AND MORTGAGE RATE 0 1 2 3 4 5 6 7 8 9 2000-Jan 2000-Jul 2001-Jan 2001-Jul 2002-Jan 2002-Jul 2003-Jan 2003-Jul 2004-Jan 2004-Jul 2005-Jan 2005-Jul 2006-Jan 2006-Jul 2007-Jan 2007-Jul 2008-Jan 2008-Jul 2009-Jan 2009-Jul 2010-Jan 2010-Jul 2011-Jan 2011-Jul 2012-Jan 2012-Jul 2013-Jan 2013-Jul 2014-Jan 2014-Jul 2015-Jan 2015-Jul Mortgage Rate Fed Funds Rate
  • 8. NO CPI INFLATION – YET -3 -2 -1 0 1 2 3 4 5 6 2000-Jan 2000-May 2000-Sep 2001-Jan 2001-May 2001-Sep 2002-Jan 2002-May 2002-Sep 2003-Jan 2003-May 2003-Sep 2004-Jan 2004-May 2004-Sep 2005-Jan 2005-May 2005-Sep 2006-Jan 2006-May 2006-Sep 2007-Jan 2007-May 2007-Sep 2008-Jan 2008-May 2008-Sep 2009-Jan 2009-May 2009-Sep 2010-Jan 2010-May 2010-Sep 2011-Jan 2011-May 2011-Sep 2012-Jan 2012-May 2012-Sep 2013-Jan 2013-May 2013-Sep 2014-Jan 2014-May 2014-Sep 2015-Jan 2015-May
  • 9. RENTS RISING AT 7-YEAR HIGH -1 0 1 2 3 4 5 2000-Jan 2000-May 2000-Sep 2001-Jan 2001-May 2001-Sep 2002-Jan 2002-May 2002-Sep 2003-Jan 2003-May 2003-Sep 2004-Jan 2004-May 2004-Sep 2005-Jan 2005-May 2005-Sep 2006-Jan 2006-May 2006-Sep 2007-Jan 2007-May 2007-Sep 2008-Jan 2008-May 2008-Sep 2009-Jan 2009-May 2009-Sep 2010-Jan 2010-May 2010-Sep 2011-Jan 2011-May 2011-Sep 2012-Jan 2012-May 2012-Sep 2013-Jan 2013-May 2013-Sep 2014-Jan 2014-May 2014-Sep 2015-Jan 2015-May Renters' Rent
  • 10. CREDIT BOX OPENS? > FICO New Method > Fannie/Freddie •  Lower down payment products > FHA premiums … lowered > Portfolio Lending … historic low mortgage default rates on recent vintages (2010-2014)
  • 11. Questions? Press 1 on your phone or Use the chat box