Citing persistent inflation, the Federal Reserve raised interest rates by a quarter of a point on Wednesday—the first raise of the new year.
“The Committee 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 percent over time,” the Federal Reserve statement read, in part. “In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.”
The immediate effect will, of course, mean that credit card and mortgages rates, along with car loans, will remain high, if not rise slightly. But there’s room for mortgage rates, in particular, to fall, according to the Mortgage Bankers Association.
“The Federal Reserve controls short-term rates, but long-term rates, including 30-year mortgage rates are a function of market expectations for the path of the economy,” said MBA SVP and Chief Economist Mike Fratantoni. “And investors are betting that the economic slowdown and the Fed’s eventual victory over inflation will result in lower rates over time. MBA is still forecasting a modest drop in mortgage rates through 2023, ending closer to 5 percent rather than the 6 percent we have today.”