The radar screen is full of important events as 2022 comes to an end but one headline risk is front and center…the two-day mid- December Federal Open Market Committee on December 13-14th. Fed members will convene to determine the path of its short-term Fed Funds Rate (FFR), discuss the overall economy, where inflation is now and its impact on monetary policy going forward.
The Fed has increased the FFR by 3.75% this year, the fastest pace of hikes the early 1980s to bring down runaway inflation. This has led to a Prime Rate of 7% from 3.25% seen a year ago. The Prime Rate is the interest rate that commercial banks charge their most creditworthy customers, generally large corporations and highly qualified individuals. In the past month, we have seen inflation pressures cooling a bit with lower readings from the Consumer and Producer Price Index. Lumber prices have declined, frothy home price gains are easing a bit while costs for medical care services, used vehicles, and apparel has been decreasing. However, food, energy, and shelter costs are still stubbornly high and are staples of the American household.
One other aspect of the economy to look for as the year comes to an end and 2023 rings in is how the consumer holding up. Consumer spending makes up two-thirds of the U.S. economy and if spending declines it will come at the expense of economic growth. A Fed member recently said that we are going to see significant softening in the economy. Does the Fed feel that the consumer is tapped out? Time will tell. The New York Federal Reserve reports that total U.S. Household Debt hit a record $16.51 trillion in the third quarter of this year. That could be a clue.
Source: Mortgage Market Guide
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