The Federal Reserve took a historic step Wednesday, raising its benchmark interest rate by 50 basis points, putting the key benchmark federal funds rate at a range of 4.25% to 4.5%. This marks the fourth rate increase this year and the ninth since 2015. With this move, the Fed is continuing its war on inflation in order to keep the economy from overheating.
New economic projections released after the two-day meeting show that policymakers expect rates to rise to 5.1% in 2023. This is a far higher level than the 4.6% rate officials last projected in September.
The new projections also indicate that economic growth will slow sharply next year and that unemployment will march substantially higher to a rate of 4.6%.
Jerome Powell suggested that lower inflation prints could boost the odds of a soft landing. He noted that the Fed will be monitoring incoming data closely, and that it has the ability to adjust rates if needed. While the rate increase is certainly a cause for concern, it’s important to recall that the Fed’s dual mandate is both price stability (inflation) and unemployment (jobs).
But what about real estate?
Powell’s remarks are broadly considered good news. What financial markets, including the mortgage industry, most dislikes, is uncertainty and volatility. His remarks indicated a more certain picture of what the future will hold, which means banks have less reason to hedge against volatility by increasing consumer-facing mortgage rates. As of this posting, mortgage rates have already started to fall, indicating that the value of the “uncertainty hedge” was greater than the 50 basis points that input-costs were increased by today.