June 13, 2023
Fifteen months ago, the Federal Reserve Board’s Open Market Committee met and raised short-term interest rates for the first time in almost four years. Since then, there has been an automatic rise in short-term rates each time they have met – ten times in all. In a previous commentary we spoke about the tide turning – inflation moderating, the real estate market slowing and banks straining under the pressure of high rates. Well, this week we will see if the tide has really turned.
What would the evidence be? Simply this – the Fed could put a pause into effect. While no one is expecting them to lower rates at this point, a simple pause will give a message to the markets regarding this turning tide. Now, even if the Fed does pause, it is not expected that they will declare that their period of rate hikes is over. They will look for additional data and evidence before making this determination. In reality, they need to pause in order to stop raising rates. Thus, regardless of what they say, it is a necessary step.
This is not to say that the Fed will pause. Several members of the Fed have declared that there has not been enough progress against inflation to justify stopping at this point. But again, there are other factors in play, such as regional banks suffering under the weight of rate increases. We expect there will be a healthy debate on this topic today and tomorrow. And when the final decision is announced, it may not be a unanimous decision. Just the fact that there will be some supporting a pause would be evidence of a turning tide. And remember, long-term rates such as mortgages often react before the Fed takes action. Thus, if the sentiment weighs heavily on a pause, mortgages could lead the way downward, at least a bit.
Source: Origination Pro
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