Officials at the Federal Reserve Board of Governors made history on Wednesday when they raised interest rates by 0.75 percent for the second time in as many months, delivering the most aggressive tightening in more than a generation to combat rising prices.
The target range for the federal funds rate was raised to 2.25 percent to 2.5 percent by policymakers in the face of the sharpest pricing pressures in 40 years. Since the price-fighting era of Paul Volcker in the early 1980s, there has been a 150-basis-point increase in the total June-July increase.
The route to prevent a recession may have narrowed, but Federal Reserve Chairman Jerome Powell does not feel that the country is presently in the throes of one.
According to NAR chief economist Lawrence Yun, a 75 basis point increase in the short-term fed funds rate will have little impact on mortgage rates.
With the 10-year Treasury rising to 3.5 percent in mid-June, “the long-term bond market, off of which mortgage rates are normally priced,” said Yun, has priced in most potential Fed actions. For the remainder of the year, 30-year fixed mortgage rates could settle at 5.5 percent to 6 percent. Home sales have been declining since mortgage rates are substantially higher now than they were a year ago.
Sales in the home market have slowed as a result of increasing interest rates. However, Yun believes that there is a ray of hope at the end of the dark tunnel. “If mortgage rates stabilize at current rates, home sales will be contingent on jobs and consumer confidence,” he said. “Job creation has continued to this day. As a result, home sales may reach a plateau inside the next few months before gradually increasing to begin with next year.
“The war and related events are exerting extra upward pressure on inflation and are weighing on global economic activity,” Fed officials stated, noting that Russia’s conflict with Ukraine is inflicting significant human and economic hardship. “Inflationary pressures are a major concern for the Committee.”
“The path for mortgage rates is less well-defined as the Fed continues to march forward with rate rises targeted at fighting inflation,” said Ruben Gonzalez, chief economist of Keller Williams. When it comes to mortgage rates, 10-year Treasuries have generally been closely linked; but, in recent months, the gap between the two has grown by one percentage point.”
Furthermore, he stated, “The housing market is currently slowing down, with home sales down 14 percent in June, and that trend is on track to continue through July.” The rise in housing prices has slowed, and one of the main reasons for this is the rise in mortgage rates. The housing market is expected to return to pre-pandemic market conditions in the coming months.”
Rate hikes are unlikely to have a significant impact on mortgage interest rates, a personal finance expert at NerdWallet tells the Wall Street Journal.
As Wood put it, “The Fed hiking rates has been like screaming into a cave and listening to your voice reverberate.” As the funds rate rose in March, the impact on mortgage rates was immediately noticeable. ‘ After a brief increase in rates in May, it was as if there had been no sound at all. Then, in June, it was as if there had been no sound at all. We can’t take interest rate stability for granted, given the current state of global and U.S. economic instability.
As long as unemployment and inflation remain below 2 percent, the Fed believes that raising interest rates as needed will be acceptable.
According to the Fed, recent signs of consumer spending and output have weakened. Despite this, the unemployment rate has been low in recent months, and job gains have been strong. As a result of the pandemic’s supply and demand mismatches, as well as rising food and energy costs and other price pressures, inflation has remained high.
“The war and related events are exerting extra upward pressure on inflation and are weighing on global economic activity,” Fed officials stated, noting that Russia’s conflict with Ukraine is inflicting significant human and economic hardship. “Inflationary pressures are a major concern for the Committee.”
“The path for mortgage rates is less well-defined as the Fed continues to march forward with rate rises targeted at fighting inflation,” said Ruben Gonzalez, chief economist of Keller Williams. When it comes to mortgage rates, 10-year Treasuries have generally been closely linked; but, in recent months, the gap between the two has grown by one percentage point.”
Furthermore, he stated, “The housing market is currently slowing down, with home sales down 14 percent in June, and that trend is on track to continue through July.” The rise in housing prices has slowed, and one of the main reasons for this is the rise in mortgage rates. The housing market is expected to return to pre-pandemic market conditions in the coming months.”
Rate hikes are unlikely to have a significant impact on mortgage interest rates, a personal finance expert at NerdWallet tells the Wall Street Journal.
As Wood put it, “The Fed hiking rates has been like screaming into a cave and listening to your voice reverberate.” As the funds rate rose in March, the impact on mortgage rates was immediately noticeable. ‘ After a brief increase in rates in May, it was as if there had been no sound at all. Then, in June, it was as if there had been no sound at all. We can’t take interest rate stability for granted, given the current state of global and U.S. economic instability.
As long as unemployment and inflation remain below 2 percent, the Fed believes that raising interest rates as needed will be acceptable.