Interest rates up or down?

Interest rates will go up! So says Janet Yellen, the current chairman of the Federal Reserve (the Fed). She did add that, as always, this depends on economic data improving. But if we look a little further than her pronouncement, we will wind up as confused about this as the Fed seems to be because with only a fewmonths left in 2016, interest rates have remained low.

Sowill interest rates rise in 2016 or not? Follow me into a very simplified discussion of this very complex debate over an issue that will in some way affect all of us. What causes interest rates to rise and fall? One ofWall Street’s favorite pastimes is trying to discern hidden messages and meanings in the baffling language of the Fed, which has been wrong again and again on forecasts over the past several years. In 2015, the agency predicted that economic growth would be stronger than it has been in 2016, causing inflation to rise. Further, the Fed said that with the predicted growth would come less unem- ployment and higher interest rates. Wall Street is still shaking it’s head.

Chastised and embarrassed over forecasting errors, they have become less likely to predict the future, both in terms of economic growth and interest-rate hikes. When rates were raised in December of 2015, after nine years of level rates, the Fed’s Open Market Committee, also headed by Janet Yellen, predicted four more hikes this year. Now, however, they are saying they withdraw that prediction and are not likely to move upward with rates until 2017, if then.

To be overly generalist, the message is to buy now, refinance now, improve your home now, purchase a new car now, and spend on any other major items you have put off. With unrest in our political climate along with increasing costs of consumer goods comes the threat of a weaker dollar, namely inflation. With inflation threatening spending and weakening of the bond market comes boosted inter- est rates. Rates have to rise to tame the economy and strengthen the dollar. As the bond market weakens, mortgage-backed securities sell off at a lower price, causing interest rates to rise and affecting your cost of buying a new home or any of the items I listed above. So far this year, inflation has remained at a non-threatening low and so have interest rates, in direct contrast to Fed predictions for 2016.

In the current low-inflation/low-interest-rate climate, businesses have been encouraged to make capital improvements, expand, and hire, fueling the fire for more spending. Housing markets across the country have boomed, development has lead to construction, and home sales have risen. It’s been a good run for those who have been smart enough to take advantage so far, and for those determined to get in while the “gettin” is still good.

Enjoy while you can because Fannie Mae’s most recent National Housing Survey, based on 1,000 households, showed 46 percent of consumers think mortgage rates will have increased by this time next year. “Buy now” has never been better advice.

Jim Gay was a real-estate broker for 20 years and has been a consultant to Fortune 500 companies. He is currently a broker/owner ofThe Mortgage Place, Inc. (986-9080) and can be reached at jim@ jimgayhomemortgage.com.