Federal Reserve’s Aggressive Rate Hike

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This year, the Federal Reserve has had to be very aggressive in their Fed Funds Rate hikes. Just this week, the Federal Reserve and its Chairman Jerome Powell raised the Fed Funds Rate up to 2.25%-2.50%.

Powell raised concerns about inflation as the major reason why they are continue raising their rates.  Inflation by the Fed’s preferred measure, the personal consumption expenditures price index, jumped 6.8% in June, its steepest increase since 1982, and the rise in core prices – excluding food and energy prices and used by the Fed as an indicator of the inflation outlook – accelerated. Meanwhile labor costs surged 5.1% in the second quarter from a year earlier, the fastest pace in decades.

This prompted the major rate hike and hinted at another round of rate hikes to come at the future meetings. Specifically, a 75 basis points hike at the upcoming September meeting.

With these rate hikes, we are already seeing the economy starting to slow down. We have had two negative readings on our gross domestic product in the last two quarters, meaning we are in a recession. During a recession, historically, mortgage rates tend to fall. And we are already seeing that.

Home borrowing costs fell this week and seem to be stabilizing after the surge in borrowing costs in the past 12 months. Freddie Mac reports that the 30-year fixed-rate mortgage fell to 4.99% from 5.30% last week with an average of 0.8 in points and fees. A year ago the rate was 2.77%. The 15-year declined to 4.26% from 4.58% last week with a 0.6 point. A year ago that 15-year was 2.10%.

Sam Khater, Freddie Mac’s Chief Economist said, “Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth. The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment.”

If you have been sitting on the sidelines to see where the market is heading, now is a good time to start having those conversations again. If the Federal Reserve remains strong and keeps raising its rate, we will continue to see a downward trend of mortgage rates.