The Fed Prepares the Markets for Higher Rates

On Wednesday, June 16, the Federal Reserve pulled forward rate hike projections and are now seeing the likelihood of the next rate hike in March 2023 followed by as many as two more hikes in 2023. This is a big departure from their recent forecast which called for an initial hike in 2024.

What Happened?

The Fed acknowledged that inflation may run hotter and be more persistent than originally thought. This is the reason why the Fed may have to hike rates sooner. While a Fed rate hike has no direct effect on home loan rates, this announcement does influence mortgage rates going forward.

How? The Fed will have to start tapering bond purchases well in advance of a Fed rate hike. This means they will slow their bond purchasing program sooner than previously expected, which will likely lead to higher mortgage rates sooner than anticipated.

But for all of this to happen, the incoming data over the next several months must support the Fed action. This means we must pay close attention to the labor market, economic growth, and inflation readings.

Bottom line: This is an amazing moment to take advantage of an interest rate environment that is being manipulated by the Fed bond-buying program. This bond-buying program is now in jeopardy should economic data come in stronger or hotter than expected. If you are considering a refinance or purchase, home loan rates may not improve much or at all from here. Now is a great time to lock.