The Federal Reserve’s interest rates are beginning slow entrenched inflation—and we are seeing the true costs.
Key Details
- The Federal Reserve has raised interest rates several times in 2022, including four consecutive 75-basis-point hikes. Rates currently stand between 3.75% to 4% and are expected to hit 4.5% in December after another planned hike.
- The increases have seen a negligible impact on inflation rates, which have only decreased from 9.1% in June to 7.7% in October, well above the Fed’s goal of 2%. It could take until 2023 for the inflation rate to settle to the Fed’s target.
- The hikes aren’t having enough of a desired effect on the economy, but are leaving negative repercussions.
- Home sales have dropped for nine consecutive months as mortgage rates continue to slow the housing market. Housing demand has dropped, construction is slowing, and new home listings are decreasing.
Why it’s News
Interest rates were almost zero in March 2022 and they’ve expanded immensely to some of their highest levels in decades in less than nine months. The economy as a whole is feeling pinched. As we previously reported, tech has responded to the stress with mass layoffs.
Analysts see these as signs that the predicted recession is approaching and that it may last through 2023. The housing market may collapse in the meantime and other areas of the economy will contract.
“What’s happening in the housing market is clear evidence that the Fed’s moves are having an impact. Mortgages are at their most expensive in 20 years, with borrowing costs on a 30-year fixed-rate loan hovering near 7%. Buyers are giving up as prices remain high and borrowing becomes unaffordable,” says The New York Times.
“The Federal Reserve’s efforts to combat inflation through interest rates have fueled a rapid run-up in borrowing costs, crushing demand and pushing homeownership out of reach for many families,” says Bloomberg.
Notable Quote
“Mortgage rates tumbled this week due to incoming data that suggests inflation may have peaked. While the decline in mortgage rates is welcome news, there is still a long road ahead for the housing market. Inflation remains elevated, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact,” says FreddieMac.
