The Federal Reserve has adopted a more hawkish tone on inflation, with chairman Jerome Powell stating last week that in order to bring down the rate of inflation, the Fed will continue to raise the short-term federal funds rate. According to the NAHB, economic forecasters estimate the Fed will ultimately raise the federal funds rate to between 3.5% and 4.0% by early 2023.
If the rate ultimately reaches this range, that would mean a top mortgage rate in this cycle would surpass 6%. The average 30-year fixed-rate mortgage ticked up to 5.55% last week.
Powell acknowledged that the fight to rein in inflation will cause economic pain, but said it is necessary to help avoid extended distress to the economy.
“While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” said Powell. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
Indeed, the housing sector is already feeling the negative economic consequences of tightened policy, as a housing downturn is underway.
