Moving Too Fast?
During the 2010’s, mortgage rates dropped to a record low of 3.35% in November 2012 and stayed in the 3.45%-4.87% range. The Federal Reserve raised the fed funds rate by 50bps to 4.25%-4.5% during its last monetary policy meeting of 2022, pushing borrowing costs to the highest level since 2007. It was the seventh consecutive rate hike, following four straight three-quarter point increases. (One basis point is one percent of one percent or 1/100 of a percent; 1 basis point = .01%, 50 basis points = .5%)
The Fed has taken very aggressive action to curb inflation raising the federal funds target rate by 425 basis points (4.25%) since March. Between 2004 and 2006, the Fed also raised rates by a total of 425 basis points, but did so over the course of two years versus the nine month span we experienced in 2022.
The Fed now expects interest rates to reach 5.1% this year, 4.1% in 2024, and 3.1% in 2025, a higher level than previously indicated. Meanwhile, GDP growth projections were revised higher for this year (0.5% vs 0.2%) but lowered for 2023 (0.5% vs 1.2%) and 2024 (1.6% vs 1.7%). Inflation forecasts were revised higher for 2022 (5.6% vs 5.4%), 2023 (3.1% vs 2.8%) and 2024 (2.5% vs 2.3%). source: Federal Reserve
Jerome Powell Said, “Over the course of the year, we have taken forceful actions to tighten the stance of monetary policy. We have covered a lot of ground, and the full effects of our rapid tightening so far are yet to be felt. Even so, we have more work to do.”