How Did The Market React To Another FED Rate Hike?

Analysts weighed the economy on Wednesday following the Federal Reserve’s latest interest rate hike a 0.75% hike that matched the central bank’s last move in June, the biggest jump in the key measure since 1994.

The latest rate hike to help curb inflation was approved by a unanimous vote of members of the Federal Open Market Committee. 

Wednesday’s move is the fourth straight Fed meeting to slow inflation, which has boosted U.S. borrowing costs. The key is fueling inflation, which has run amok in a way not seen since the early 1980s.

Along with other analysts, William Raveis Mortgage Regional Vice President Melissa Cohn correctly predicted a 0.75% increase. 

Despite higher borrowing costs as a result of the Fed’s action, he noted that mortgage rates are beginning to show signs of falling as the central bank continues to battle the “inflationary dragon,” the 40-year veteran said.

“With inflation still running at a fever pitch, the only option is to raise rates,” he told Mortgage Professional America.

“At the same time, the economy is starting to show signs of weakness, which along with the Fed’s continued bond buying pushed the 10-year Treasury yield to 2.80% today from a peak of around 3.50% a month ago. “

There’s also good news for the industry: “Mortgage rates are down to 0.50% in some cases over the past 10 days,” Cohn said. 

“Lower mortgage rates are a welcome relief for homebuyers. While no one wants a weak economy, lower rates are what the real estate market needs in the middle of summer.

After the Fed’s action, he turned to MPA for more views on the immediate impact: “Both stocks and bonds cheered the move and Fed Chairman [Jerome] Powell’s comments along the way. 

The 10-year bond yield remains below 2.80%, which is good news for mortgage rates. If the rally continues, we may look for better rates in the morning and return to data on the direction of loans for the summer balance. 

Remember, bad news for the economy is good for bonds and mortgage rates!

Michele Raneri, vice president of U.S. research and consulting at TransUnion, offers a different approach a decidedly less rosy outlook than Cohn’s. 

“Interest rates have been rising steadily in recent months, and today’s 0.75% rate hike by the Federal Reserve will likely have the biggest impact on consumers with mortgages and credit cards,” Raneri said. in MPA. 

“Interest rates on a new fixed rate hike which is usually most mortgages – always increase the rate hike by the Fed, which can buy new homes or buy more, you dear.”

Raneri continued, “When people buy a new home, the amount they’re willing to spend is in line with how much they can afford for the monthly payment. 

To buy the same home they could afford six months ago, consumers can opt for an adjustable-rate mortgage because their first monthly payment is lower than a fixed-rate mortgage.”

Mike Fratantoni, senior vice president and chief economist for the Mortgage Bankers Association, spoke of a mixed message that he classified as an economic tug-of-war between various economic factors. 

However, he sees good things on the horizon for mortgage payments.

“Mortgage rates have fallen by about half a percentage point in recent weeks, closer to 5.5% than the 6% rate we saw in June,” Fratantoni told MPA. 

“There is a tug-of-war in market expectations between persistently high inflation numbers and the resulting rapid rate hikes by the Fed and the growing risk of a sharp slowdown and possible tightening. 

As a result, mortgage rates may already be rising and remain at 5% and 5.5% through the end of the year 2022. If that’s the case, potential buyers wary of rate hikes may find their way back into the housing market.”

The MBA economist expressed confidence in the central bank as it tries to calm inflation: “Further rate hikes are on the cards for at least the rest of the year,” he said. “The unanimous vote for this rate increase underscores the commitment to this path.”