Inflation and Interest Rate Update

There are two things that the markets will be closely watching in the months ahead...if inflation continues to inch lower and what will the Federal Reserve (the Fed) do as far as interest rates in 2023.

The Fed controls the short-term Fed Funds Rate which is the rate at which financial institutions lend excess funds held in reserve on an overnight basis. The rate impacts short-term rates like credit cards, cars, and bank loans. In 2022, the Fed embarked on its fastest rate hike pace in decades as it tried to ward off surging inflation that culminated in July with the highest inflation rate in 41 years. The Fed Funds Rate went from essentially zero in early March of 2022 to end the year at 4.50% and what it does is pull cash out of the system to try and battle inflation.

But the Fed had to do something seeing that the price of eggs tripled, gas prices rose $2 and rents soared while borrowing costs surged. So, the Fed had/must slow the economy down and almost cause a recession to halt runaway inflation. Was the Fed too late when it began hiking rates in March? We witnessed inflation peak in July and home borrowing costs more than doubled. Should the Fed have begun tightening in late 2021? Those questions may never be answered.

We do know that since mid-summer, home borrowing costs have eased a bit and if inflation continues to decline, costs could fall further with the opposite being true.

Also, keep an eye on incoming economic reports, along with borrowing increases from the government through the issuance of more debt. If China eventually reopens fully from its Covid mandates, it could mean higher oil and gas prices and a boost to the stock markets.

All the above points are just a handful of events that impact home borrowing costs. But all things considered, now is always a good time to purchase a home if you are secure in your job and can swing the payments.

Source: Mortgage Market Guide/ Guy Vetrano Bay Equity Home Loans