The Federal Reserve raised short-term interest rates by 0.50 percent—or 50 basis points—today. Marking the largest jump since May 2000, the Fed has in the past opted to raise interest rates in increments of 0.25 percent.
In an attempt to quell fears, Federal Reserve Chairman Jerome Powell said the bank is not “actively considering” a 75 basis point increase.
“A 75 basis point increase is not something that committee is actively considering,” Powell said, according to CNBC. “I think expectations are that we’ll start to see inflation, you know, flattening out.
“It’s a very difficult environment to try to give forward guidance 60, 90 days in advance, there’s just so many things that can happen in the economy around the world,” Powell continued. “So, you know, we’re leaving ourselves room to look at the data and make this decision as we get there.”
The central bank suggested that it will continue to raise borrowing costs throughout 2022 as it attempts to undo its pandemic-era policies. Powell reportedly added that the central bank has a “good chance” of achieving a soft landing for the U.S. economy as it increases rates to combat rising inflation.
“It doesn’t seem to be anywhere close to a downturn,” Powell said. “Therefore, the economy is strong and is well-positioned to handle tighter monetary policy.”
So, what does the hike mean for housing? Mortgage rates in California will likely continue to climb past their current 5 percent level for a fixed rate loan, said Jordan Levine, chief economist at the California Association of Realtors, as reported by the Sacramento Bee. In the long run, the rising rates move further flow the housing market.
While housing supply appears to be on the upswing as builders increasingly construct new homes, the National Association of Realtors Chief Economist Lawrence Yun says inflation will persist and, in turn, cause strain for would-be buyers.
“Mortgages now compared to just a few months ago are costing more money for home buyers,” Yun said. “For a median-priced home, the price difference is $300-$400 more per month, which is a hefty toll for a working family.”
NAR calculates purchasing a home is now 55 percent more expensive than a year ago.