Inflation, The Fed, and Rates

A few problems that are being watched are how far will the Federal Reserve hike rates to stave off inflation and how U.S. economic growth fares in the final quarter of 2022. The Fed has signaled that it will continue to raise rates until the end of the year and hopefully the economy won’t fall into a recession. The first half of 2022 saw negative growth while the third quarter ended with the Atlanta Fed forecasting near-flat growth and it too can easily come in with a negative number. The U.S. could already be in a recession.

In his last press conference, Mr. Powell said, “The chances of a soft landing are likely to diminish” as the Fed hikes rates to slow the worst streak of inflation in four decades. “No one knows whether this process will lead to a recession or, if so, how significant that recession would be.” Not a positive forecast for Americans.

On the inflation front, there have been some signs of an easing supply chain, much lower lumber costs, commodity prices are well off their highs while the month-over-month inflation reading Consumer Price Index has been inching lower. So maybe inflation inches lower but it has a long way to go before consumers are better off. As far as economic growth, it is in the hands of the Federal Reserve. If the central bank pushes rates too high, a recession is inevitable, and consumers will suffer.

But if U.S. growth data signals a recession or a deep recession, it will have an impact on rates, which should decline as investors usually move to the safe haven of the bond markets. As bond prices rise rates tend to decline.

Bottom line: Across the U.S., people always need shelter whether it be by renting, though rental rates are at record highs, or by fulfilling the American dream of homeownership.

Source: Mortgage Market Guide