The Federal Reserve’s monetary policy committee voted to raise the federal funds target rate by 75 basis points to a range of 3% and 3.25%. The increase follows 75-basis point hikes in July and June, and increases of 25 basis points in March and 50 basis points in May. The fifth rate hike is part of the Federal Reserve’s continued effort to cool the high levels of inflation.
While job gains have been robust in recent months—with low levels of unemployment—inflation, supply and demand imbalances, higher food and energy prices, and broader price pressures remain in the economy, according to the committee.
The committee says it will continue to monitor the implications of income information on the economic outlook and is prepared to adjust the stance on monetary policy “as appropriate” if risks emerge that could impede attainment of price stability and taming inflation.
During the most recent National Housing Market Update webinar, Zonda chief economist Ali Wolf said the 75-basis point hike was again “well-communicated” and part of the Federal Reserve’s effort to “not shock the system.”
“In our view, the recent interest rate surge is due to the market’s recognition of two critical factors: That inflation is indeed not transitory, and that, to tame it, the Federal Reserve will need to be resolute, even at the risk of possible recession,” says Doug Duncan, Fannie Mae senior vice president and chief economist. “Inflation’s entrenchment—and the policy action likely required of the Fed—confirms the expectation in our forecast of a moderate recession beginning in the first quarter of 2023. That said, the rise in rates is having the Fed’s desired effect on housing, as house price growth began to slow in June. We expect the slowdown in housing to continue through 2023 as affordability constraints mount for potential home buyers, and considering, too, that refinance activity has been significantly curtailed by the rise in mortgage rates.”
