The Federal Reserve Open Market Committee voted to raise the federal funds target rate by 75 basis points for the fourth time since June. After the latest basis point hike, the target range for the federal funds rate is between 3.75% and 4%. The latest rate hike is the sixth overall increase as part of the Federal Reserve’s continued effort to cool inflation.
“The Federal Reserve did exactly what was expected today by raising short-term interest rates another 75 basis points,” says Zonda chief economist Ali Wolf. “Mortgage rates aren’t expected to rise another 75 basis points, though, because investors have largely already priced in the move.”
While job gains have been “robust in recent months” and the unemployment rate has remained low, inflation, supply and demand imbalances, high food and energy prices, and broader price pressures continue to persist in the economy, according to the Federal Reserve’s monetary policy committee.
In the announcement, the committee said it “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% over time.” The committee will consider the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments in determining the pace of future increases in the target range. According to the committee, it is prepared to adjust the stance of monetary policy “as appropriate if risks emerge that could impede attainment of the committee’s goals.”
“Where this [rate hike] leaves us is with mortgage rates that are now averaging around 7% while the Federal Reserve continues to forcefully try to slow the economy and bring inflation down,” says Wolf. “The combination of higher rates and a fear of an economic recession are playing into consumer confidence and leaving many prospective home buyers on the sidelines.”
