The Federal Reserve indicated it is prepared to raise short-term interest rates by 50 basis points to fight inflation.

Rates Surged to 4.601% on March 21

It was only last mid-week on March 16 that the Fed approved a 25-basis-point increase in the federal funds short-term interest rate in its effort to counter fast-rising inflation.

On March 21, however, Jerome Powell addressed the National Association for Business Economics by saying, “The added near-term upward pressure from the invasion of Ukraine on inflation from energy, food, and other commodities comes at a time of already too high inflation.  In normal times, when employment and inflation are close to our objectives, monetary policy would look through a brief burst of inflation associated with commodity price shocks.  However, the risk is rising that an extended period of high inflation could push longer-term expectations uncomfortably higher.”


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Short-term interest rates on 30-year fixed-rate conforming mortgages hit 4.601% on March 21, according to rate quote data compiled by OptimalBlue.  According to the Optimal Blue Mortgage Market Indices, the last time inflation fears drove rates on conforming mortgage rates above 5% was December 2018.

Clearly, if the Federal Reserve next increases interest rates by 50-basis points, interest rates on conforming loans would certainly rise to 5% and higher.

Two Causes of Inflationary Concerns – Ukraine War & Spread of BA.2 COVID Variant

When Russia invaded Ukraine in late February, the Fed initially attempted to calm financial markets by saying that the central bank would limit its rate increases to 25-basis points.  Unfortunately, the Ukraine war is now in its second month and, in addition to untold human suffering and death, has caused prices of oil and other commodities to spike.

Plus, there is concern that the BA.2 COVID variant (now rampantly spreading throughout Europe and just declared to do the same in the US) may cause further havoc on international supply chains.  Powell said that the timing and scope of supply-side relief are now “highly uncertain.”

Mortgage Rate Forecasts All Over the Map

Michael Fratantoni, chief economist with the Mortgage Bankers Association (MBA), said, “Mortgage rates have been exceptionally volatile in recent weeks, given the profound uncertainties both with respect to the geopolitical situation and monetary policy.”

The MBA’s most recent mortgage rate forecast indicates that mortgage rates will not climb past 4.6% throughout 2022.  Fannie Mae’s March 10 forecast indicated that its economists see rates stabilizing closer to 4% in 2022 and 2023.

Meanwhile, trillions of dollars in investment capital worldwide are seeking higher returns.

Ian Shepherdson, chief economist with Pantheon Macroeconomics, indicated that Pantheon’s team was lowering its forecast for Q1 2022 GDP to zero.

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