The Federal Reserve’s Federal Open Market Committee voted to increase federal fund rates by an additional 75 basis points during its Nov. 1-2, 2022, meeting.
Inflation – which the Fed initially described as “transitory” – has remained high over the past several months. In September, the costs of goods and services were 8.2 percent higher compared with a year earlier, well above the Fed’s target inflation rate of 2 percent.
“The committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run,” FOMC said in its press release. “In support of these goals, the committee decided to raise the target range for the federal funds rate from 3-3/4 to 4 percent. The committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
“The financial markets correctly anticipated that the Federal Reserve would increase the federal funds rate by another 75 basis points at its November meeting,” said MBA Senior Vice President and Chief Economist Mike Fratantoni. “With inflation still running far too high, and the job market remaining strong, MBA expects the Fed to increase rates by another 75 basis points before holding them steady throughout 2023.”
In response to the Fed’s increased rates, mortgage fixed rates have remained above 7 percent since mid-September. This has led to a near-complete halt of refinancing and a drastic slowing of home purchase activity. These elevated mortgage rates, combined with record high home prices over the past two years, have significantly reduced affordability.
Fratantoni added: “The volatility seen in mortgage rates should subside once inflation begins to slow and the peak rate for this hiking cycle comes into view.”
National Association of Realtors Chief Economist Lawrence Yun said: “Even with the Federal Reserve raising its short-term fed funds rate by another large amount, longer-term interest rates look to move only slightly. The mortgage market has already priced in the latest Fed move. Still, mortgage rates are near 20-year highs, and that hurts homebuyers. Once inflation is contained, mortgage rates will start to drift lower. It may be another year or two before that happens.”