As the economy continues to recover from the impact of the pandemic, the Federal Reserve is taking measures to address inflation and manage economic momentum. With expectations of another 0.25% increase in the Fed Funds Rate, we are witnessing a gradual shift away from the 0% rate of April 2022. In this blog, we’ll explore the current state of inflation, the impact of labor strikes, and the effects of Federal Fiscal spending on the economy. Additionally, we’ll discuss the state of mortgage rates and the Federal Reserve’s approach to maintaining rates “higher for longer.”
- Inflation Targets: The Federal Reserve’s inflation target has shown significant improvement, with the Consumer Price Index (CPI) declining from 9% in May 2022 to 3% currently. The Fed primarily monitors the Personal Consumption Expenditures (PCE) index, with its latest figures set to be released soon. Despite progress, the challenge lies in curbing the last part of inflation, which can be challenging to hit the Fed’s 2% target.
- Labor Strikes and Fiscal Spending: Labor strikes and federal fiscal spending can become central components influencing inflation. The “Inflation Reduction Act of 2022” allocates substantial federal funds to infrastructure projects, employing labor and materials, which can contribute to inflationary pressures.
- Mortgage Rates and Housing Market: Mortgage rates remain in the high 6s to low 7s, even as the housing market remains active, with prices continuing to rise. The spread between the 10-year note and 30-year mortgage is historically higher than usual, indicating increased market volatility, and the Fed’s liquidation of bonds accumulated onto their spreadsheet when they artificially lowered rates during Covid.
- The Federal Reserve’s Outlook: Given the ongoing economic momentum, the Federal Reserve is expected to maintain “higher for longer” interest rates. While banks continue to lend, credit conditions have tightened, reflecting cautious economic management. The Federal Reserve is likely to exercise caution before considering any rate cuts unless significant economic weaknesses arise.
As the Federal Reserve prepares for another increase in the Fed Funds Rate, it’s clear that the overall economy is showing signs of recovery. Inflation rates have improved, but labor strikes and federal fiscal spending pose challenges. Mortgage rates remain relatively high, yet the housing market remains active. The Federal Reserve’s decision to maintain “higher for longer” rates is a testament to their cautious approach in managing the evolving economic landscape. Moving forward, the Federal Reserve will closely monitor economic indicators to strike a balance between controlling inflation and supporting sustainable economic growth.
If you are in the Los Angeles area, and have any questions or real estate sales or financing needs, feel free in contacting me
Ron Henderson GRI, SRES, SFR, RECS, CIAS
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
Chairman – OutWest Marketing Meeting (Real Estate Education)
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
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