NewsHow Will Mortgage Rates Respond After The Fed’s 0.75% Rate Hike?

How Will Mortgage Rates Respond After The Fed’s 0.75% Rate Hike?

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The Federal Reserve, as expected, increased federal interest rates by 0.75% on Wednesday, November 2. This is the fourth time they have raised interest rates by that much this year, a historic move that is intended to address decades-high inflation. Annual inflation was at 8.2% as of the beginning of October, the highest rate since the early 1980s.

The Fed also raised interest rates by 75 basis points in June, July, and September, by 25 basis points in March, and 50 basis points in May. The federal fund’s interest rate was 0.25% at the beginning of the year but is now 4.0%.

While the Federal Reserve keeps raising interest rates by significant margins, Fed Chair Jerome Powell indicated that more rate hikes are imminent but that future rate increases could be lower than the latest 75 basis point hikes.

“That time is coming and it may come as soon as the next meeting or the one after that,” Powell said at a press conference after the latest Federal Reserve meeting. “It’s very premature to be thinking about pausing. We have a ways to go.”

Powell’s reasoning is that he wants the Fed’s benchmark interest rate to be restrictive enough to lower inflation to 2%, a typical annual inflation level. However, economists are worried that the impact of further rate hikes on economic growth increases the likelihood of a recession next year.

How Does the Fed’s Move Impact Mortgage Rates?

Right now, it’s not entirely clear how the Fed’s latest rate hike will impact mortgage interest rates. However, there is evidence that the latest hike is already baked in, so rates may not rise much in the coming weeks.

“What’s tricky about watching what the Federal Reserve is doing is that it doesn’t always directly translate into a one-to-one change in mortgage rates,” Ali Wolf, chief economist at Zonda, said to Time. “There have been times following the Fed’s meeting where mortgage interest rates have actually gone down and times when mortgage rates go up.”

Lawrence Yun, Chief Economist at the National Association of Realtors, expects mortgage interest rates to stay around 7% for the near future. “The new normal for mortgage rates could be around 7% for a while”, Yun said in a press release.

“Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers,” Yun added.

According to the Federal Reserve, the average 30-year FRM was 7.08% as of October 27.

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