The Federal Reserve has been performing a juggling act throughout the past year. First, the recession required the Fed to keep the rate as close to zero as possible in order to boost the economy and get Americans back to work. Now, the Fed is looking to raise the short-term interest rate in order to fight inflation.
It’s no surprise that home prices have been skyrocketing; in fact, just last month that prices hit a 39-year record high. The hope is that increasing interest rates will balance out the rise in prices.
In order to make this possible, they will be phasing out their bond-buying stimulus. The quicker deceleration puts the central bank on track to conclude the bond purchases (these are aimed at pushing down long-term mortgage rates) by March rather than June. They predict this will make way for up to three rate increases in 2022.
The Fed’s biggest challenge it faces in this endeavor is to lower inflation without disrupting the national economy’s recovery, and COVID-19 outbreaks are not helping. Essentially, they facilitate changes to lower rates in order to spur more borrowing and economic activity and raise them to ward off inflation surges.
How much will interest rates rise?
In 2022, the Fed foresees three rate increases, followed by three more in 2023, and two in 2024. This would push the rate up to 2.1% by the end of 2024.
How much will this help the economy?
Fed officials now predict the economy will grow 5.5% this year, down from their original 5.9% estimate in September. They forecast 4% growth in 2022, up from their prior 3.8% estimate. Lastly, they suggest the 4.2% unemployment rate will end this year at 4.3% and 2022 at 3.5% (below their previous 3.8% projection).
In short, if you are looking to purchase or refinance your home, do it soon. Call us at (760) 930-0569 and one of our loan officers will discuss your options with you.