There has been much speculation that interest rates would soar this summer after Fed stopped purchasing Fannie Mae and Freddie Mac mortgage backed securities in March.  Lawrence Yun, Chief Economist of the National Association of Realtors, speculates that the continuing high US budget deficit and the recovering economy will cause the interest rate to rise to about 6% by December 2010 and to about 6.5 % by the end of 2011.

However, other analysts say that the rates should remain low because the Fed recently laid out the conditions that would lead it to raise rates and this criteria is not going to happen in the near future.

Three economic conditions allow for the Fed’s current low interest rate policy:

1. An economy that is producing less than it would if fewer people were unemployed and fewer factories were idle
2. Prices are rising very slowly
3. American’s who are making financial decisions are not assuming that prices will go up rapidly

The Fed is unlikely to raise rates until at least one of the above conditions no longer holds.