The Fed Says They’re Only Increasing Rates by 25%. It’s Not What It Seems…

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Filed under: Market Comentary

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Earlier today, The Fed was in front of congress and talking about the direction we are going with rates. One thing they said seemed to be great news on the surface – regarding a small increase in rates. Note: remember that we are talking about the Fed funds rate.

Assumptions About Rates Going Up

It’s been a foregone conclusion that The Fed was going to increase rates by a quarter of a point. Additionally, there has been a bunch of talk about rates going up by half a percent. Today, he stuck with the .25% increase. On the surface, it seems to be a good conservative move, especially with everything that is going on with the Ukraine situation.

What Happens When The Fed Increases Rates?

Keep in mind that when the rates go up, it should have the effect of cooling the economy, which should bring inflation down. We are in unprecedented times on a lot of fronts, but that’s generally how it works.

The bond market, which sets mortgage rates, didn’t like this news. It’s been a pretty rough day in mortgage rates today. These investors are showing that The Fed needs to get ahead of inflation, which then is likely to bring down the mortgage rates. But that’s not what is happening. The way the market is responding, it is bad news for mortgage rates in the near term.

We’ll see how things go. But based on sound bites, it is currently increasing mortgage rates.

How Mortgage Rates are Affected in the Long Run

Over the long haul, these changes work counter-intuitive in the way mortgage rates are affected. Some things that we are hearing won’t always create the response that you would expect in the market.

What we need to bring mortgage rates down is a drop in inflation. Until that happens, expect us to be where we are with mortgage rates – or even worse.

If you ever have questions about how mortgage rates are changing, feel free to reach out to me any time. I’ll help you find the right financing solutions for your home purchase or refinance.

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