Repricing – Financial Markets – Week 3

Economic Growth 2018-2019:

Economic growth will continue to increase in 2018 and into 2019. The tax law signed in late December of 2017 assures those facts.

Historically, any impact made on the economic system is not fully reflected in it until 9 to 12 months later. That would suggest that we will begin to see the full impact of the new tax law in the fourth quarter of 2018. There will be a significant amount of economic growth momentum going into 2019, perhaps continuing into 2020.

Strong economic growth means that The Fed will raise interest rates. It makes no difference whether it is three or four times in 2018 or a total of six times in 2018 and 2019. As The Fed raises interest rates, higher rates will have an impact on mortgage loan rates and consumer loan rates resulting in slower new home sales.

The positive news is that high interest rates will benefit savers. Their increase in interest received will offset some of the negative economic impact of the higher interest being charged by banks. There is a point where The Fed will overshoot, and they will not know that they have done that until there is recession.

Watch for a repricing of real estate as these trends play out.