The Federal Reserve on Wednesday raised the main short-term interest rate by a quarter percentage point to keep inflation in check. While this measure may not have a significant impact on mortgage rates in the short term, it could help lower mortgage rates in the long term.
The overnight federal funds rate will increase by 0.25 percentage points to a range of 4.5% to 4.75%. The prime rate will increase by a quarter percentage point to 7.75%. Interest rates linked to the prime rate, including the home equity credit line, will also rise by 0.25 percentage points. But mortgage rates don’t always follow suit.
Mortgage rates fall with inflation
We all knew a few weeks ago that the Fed was going to raise overnight rates at this meeting.Fixed interest rates on home loans Most of January went downIt wasn’t a drastic drop. The average yield on 30-year fixed-rate mortgages in January fell from his 6.38% in December.
But whenever mortgage rates and federal funds rates move in opposite directions, it’s a good reminder that the Fed influences mortgage rates but doesn’t set them. It is governed by a series of market forces.
soon, mortgage interest rate It is strongly affected by inflation. Inflation is declining, which is the main reason mortgage rates fell in his January. The latest consumer price index in December showed that overall prices have risen 6.5% over the past 12 months. That’s down from his peak of 9.1% in June.
2% inflation still a stretch goal
The goal of the Federal Reserve is to inflation Interest rates are up to 2%, so there’s still a long way to go. Mortgage Bankers Association chief economist Michael Fratantoni said, “The Federal Reserve will continue to raise short-term interest rates to fight inflation and will ultimately succeed, but inflation is the target 2. % will be reached in early 2024.” email.
The Fed’s Monetary Policy Committee met eight times a year, and this was the eighth consecutive rate hike. The central bank rose modestly last spring and then pedaled back to back, making his four rate hikes of 0.75% in the summer and fall. At first he was up half a point in December and now he’s up a quarter of a point.
planes, fares, cars
Dallas Federal Reserve Bank President Rory Logan used a different car analogy when describing a smaller rate hike. The fog, she said, consists of “data and qualitative reporting becoming more complex as the economy slows.”
Fed President Christopher J. Waller used the aviation metaphor in his January 20 speech to explain the Fed’s reasons. “After rising rapidly and using monetary policy to significantly raise interest rates across the economy, it was clear that it was time to slow the rate of increase, but we couldn’t stop it.”
Darryl Fairweather, chief economist at real-estate broker Redfin, said delaying rate hikes would be wise. That could stumble economic growth and do more harm than good, she says.
HELOC payments go up
home equity credit line It is a common way for homeowners to pay for renovations and repairs. A quarter point increase in HELOC interest rates will increase the cost of borrowing or repaying already withdrawn funds. On a balance of $50,000, the monthly interest rate increases by $10.42.
