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The Top Of Fed Funds Mountain

Market Update | New American Funding

Hello everyone.  Welcome back to the Mortgage Rundown.  Today we are going to talk about what’s happening with the Capital Markets.

Well, higher interest rates are still the name of the game as the FOMC continues to battle stubbornly high inflation.  The latest CPI and PPI figures have shown that inflation is coming down but very slowly. 

Mortgage rates have now been above 6% for over 7 months and it’s not likely they will drop anytime soon.  That’s caused real estate inventory to be very tight as buyers do not want to bear the cost of higher interest rates by moving.

The Federal Reserve is largely anticipated to raise the benchmark rate 25bps at the next meeting on May 3rd and the belief is that this will end the Fed’s campaign of raising rates to bring down inflation.  How soon will inflation come down and what will happen after May’s meeting is anyone’s guess, but rest assured there is a battle brewing.

After the FOMC meeting next week, it’s largely expected the market will find a balance of risk with inflation on one side and the economy on the other.  Remember, if the Fed pauses after the May meeting, they are acknowledging that they likely won’t need to do more to combat inflation.  That doesn’t mean that inflation is defeated, it just means they might not increase rates anymore to push it lower.  And by that same pause they are simultaneously acknowledging they are equally concerned about what higher rates are doing to the economy.

That pause is telling the market that the Fed could move either direction; and with that balance of fear, combined with how much the Fed has raised rates over the past year plus, should mean we are in store for more market volatility ahead.

Don’t also forget that the yield curve is inverted, the market believes the economy is near a recession and once the Fed pauses, short-term and long-term rates are going to move around fairly dramatically as the yield curve reshapes itself towards the new Fed path on rates.

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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