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The Interest Rate Rollercoaster

Market Update | Jason Obradovich

Hello, everyone. Welcome back to the mortgage rundown. Today we're talking about what's happening with interest rates.

Rates go up and rates go down. We are witnessing one of the most volatile interest rate markets in history. Treasury rates hit their lowest point ever just two years ago and in the last 45 days they saw some of the highest rates in 15 years.

As we've talked about before, very high inflation is forcing the Federal Reserve to push up interest rates in an effort to slow down the economy. And what is keeping rates from running higher, out of control, is recessionary fears and the likelihood that higher rates will slow the economy down too much. The volatility is coming from inflationary fears one week and recessionary fears the next week.

The big question out there is what is the Fed's future path of rates? Will they continue to raise rates through May of next year only to drop them immediately to stop a recession? Or will they keep rates at an elevated level through most, if not all, of 2023 to ensure inflation is beat? And how high will they raise the overnight rate, which is currently 3.75 to 4%? Will that move as high as 5% or even higher?

Those are all the important questions being debated by economists and the market. Even the economists don't agree on the Fed's future path of rates. Half say the economy has a very strong job market, so that gives the Fed the ability to leave rates higher longer, and half think the Fed will try to prevent a recession and back off. The Fed is actually telling us they will leave rates higher for an extended period of time. But as I mentioned, half the market doesn't believe it.

During the FOMC meeting next week, they will release their updated dot plot and we will get a clear picture on what they see the future path of rates will be for 2023 and beyond. In the interim, I would expect more continued rate volatility, along with some very big moves next Wednesday after the Fed announcement. That's it everyone from the Capital Markets Desk this week. Thank you all for watching and have a great day.

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