In keeping with its consistent and aggressive rate hikes meant to cool runaway inflation in the U.S. economy, the Federal Reserve raised the federal funds target rate by 75 basis points on Wednesday, and according to NAHB, rates could remain elevated for a substantial period of time. By the end of 2022, the federal funds rate is expected to top 4.8%, and that could send the average 30-year fixed mortgage rate beyond 6.5% in the final months of the year.
As higher interest rates quell home purchasing activity nationwide, the current monetary policy path points toward a likely recession, which experts say may be the only solution to rebalancing a turbulent market.
The current monetary policy path all but guarantees a mild recession, along with a notable rise in the unemployment rate. In fact, the Fed is risking an overshoot given the lagging contributors of inflation, such as rent, which will show gains in the data several months after the actual economy has stalled. The Fed’s current path is thus overly hawkish, particularly given the previous two quarters of declining GDP.
Read more
