Hello everyone. Welcome back to the Mortgage Rundown. Today we are going to talk about what’s happening with interest rates.
Just a few short weeks ago was one of the most important FOMC meetings in several years. As you probably already know, the Federal Reserve raised their benchmark rate another 0.75% and the overnight Fed Funds rate is now in the range of 3-3.25%.
Not only did they raise the rate once again at a historically fast rate, but they have provided guidance for the remainder of the year that they likely will raise rates 75bps again in November and 50bps or possibly more in December, which will push the upper hand of the benchmark rate right around 4.5%.
The Fed’s more hawkish tone surprised the market somewhat and here we stand with the 10yr Treasury inching back closer to 4%, not to mention the 2yr Treasury is driving very close to 4.5%. Clearly the market got the Fed’s message that they plan to crush inflation no matter the cost.
With all of that being said, where do mortgage rates go from here? Well, it’s safe to say that the market has fully baked in the Fed’s intentions over the next 3-4 months. The big question will be how soon until we see inflation start to abate to a more normal level.
There are several market prognosticators that expect the Fed to reach its inflation target by the end of the 1st quarter next year and, at the same time, many economists are expecting the economy to be in a recession around the same time period.
If both of those things happen, then we could see a decent drop in mortgage rates as the market adjusts to a potential pivot by the Fed. However, the Fed has told the market that they should not expect a quick pivot, so I would be somewhat cautious both ways.
For now, we need to keep a close eye on inflation and employment data as we head towards the end of the year.
That’s it everyone from the capital markets desk this week. Thank you all for watching and have a great day.