The Federal Reserve announced that it’s raising interest rates by 0.25 percentage point, following its March 21-22 meeting, bumping the federal funds rate to a target range of 4.75 to 5.0 percent. With the move, the Federal Reserve marked the ninth straight meeting that it raised rates in an effort to rapidly reduce liquidity to the financial markets and tamp down high inflation.
The Fed’s decision comes as inflation hit 6 percent year over year in February, still among the highest levels in decades, though falling from its 2022 highs. With the Fed continuing to hit the brakes on an overheated economy, the main question for many market watchers is how much further will the Fed raise rates and how deep an ensuing recession could become.
”The fight against inflation continues,” says Greg McBride, CFA, Bankrate chief financial analyst. “The recent turmoil in banking subsided and there was enough normalcy in financial markets that the Fed was comfortable with a ninth interest rate hike.”
Besides raising interest rates, the Fed has also been selling off huge chunks of its bond portfolio. As the Fed runs off its balance sheet, the move helps drain liquidity from the financial system in an effort to slow inflation.
At about 3.6 percent, the 10-year Treasury note is now well below its 52-week high of 4.33 percent, which was hit in October 2022. The slide in that yield even as the Fed continues to raise short-term rates suggests that investors are preparing for a recession in the near term as well as ongoing anxiety about the financial system’s stability in light of recent bank failures.
Does Fed interest rate affect mortgages?
Thirty-year fixed-rate mortgages are affected by the Fed’s key short-term rate only indirectly. Their movements respond to how Fed policies affect broader conditions, including inflation and the nation’s economic outlook.
“After a couple of weeks of volatility, mortgage rates are likely to stabilize as a result of this Federal Reserve hike,” said Holden Lewis, home and mortgage expert at NerdWallet. “Home sellers will have to make peace with the fact that they’re going to trade the low-interest rate on their current house with a higher rate on their next house, and they might not sell for the price they’re hoping for,” he said, adding, “Home buyers should accept that if they wait for interest rates to fall substantially, they might wait longer than they expect.”
See the full story on latest Fed increase
Fed hikes interest rate 0.25 point to curb inflation despite banking turmoil (msn.com)
