The Fed Increased Rates By .25%. The Market is Skeptical

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Filed under: Market Comentary

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The Fed meets on Wednesday every six weeks, and this week they decided to increase the Fed Funds Rate by .25%. I’ve talked about this topic before, but it’s a good chance to review: does this rate change have any impact on mortgage rates? No, it’s not linked directly.

Why the Fed is Increasing Rates

The reason to increase the Fed Funds Rate is to cool down spending and the economy, which should have an impact on inflation. As inflation cools, then we should see an improvement in interest rates. Again, inflation is the arch-enemy to long-term mortgage rates. These long-term rates are different than the short-term rates that the Fed deals in.

The rate increase announcement made the market skeptical. I think the market would have liked to see more: a half-point increase to get things to cool off faster.

Of course, the Fed has a difficult job because they are trying to manage annual projections. Historically speaking: when the Fed increases rates, it does have the impact to cool inflation, it also cools the economy to the point where we usually end up in a recession.

How is the Market Reacting to This Announcement?

Know that the market is not reacting very favorably to the announcement. But know that from a real estate perspective, we need the Fed engaged to hopefully help inflation come down – which can bring down mortgage rates as well.

Any questions or thoughts? Reach out to me if you’d like more information about this topic. I’m always a phone call away if you are wondering about the best solutions for your home financing. I’m here to help!

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