It was a Fed meeting week, and they held firm that the fight against inflation is not over. The Federal Reserve held their rate, they didn’t pause or hike stating that the labor market appears to be stable enough while inflation is still higher than their target. They might have had an inside preview of the PCE numbers we got this morning…
Almost immediately after the Fed announcement, Trump got on Powell’s case – stating that rates need to be lower. He said the same last week. The markets aren’t reacting much to his commentary and maybe that’s because they are wondering the same thing we are, “can he really lower rates?” Especially amidst inflationary policy measures…
Sandi and I are going to dive into that during Property Pursuits, our monthly market update this coming Wednesday. Make sure you register to join us live.
For now, let me share two things that could lower rates this year and one that I think should.
The spread between the 10yr treasury and 30 year fixed – this is the hidden force behind better interest rates that I talked about two weeks ago. It’s worth going back to that post because this could mean rates in the 5’s, this year. Or you can just check out the condensed explanation I posted on Instagram.
A recession. If the Fed chooses to maintain a politically uninfluenced stance, then it’s possible they don’t cut rates much this year in the face of ruthless inflation. It seems like they are trying to strengthen their spine as they didn’t cut this week, even amidst pressure from the President. Some think they had already seen the PCE data the markets would receive today, when they met earlier this week. Those numbers came in this morning showing inflation rose .3% in December and year over year, we went from 2.4% to 2.6%. Away from the Fed’s target of 2%.
Economists are surveyed on their opinion of the likelihood of a recession fairly often. Right now those forecasts show they think the odds of one materializing this year are about 25-30% which seems like a lot but is actually more optimistic than they have been recently.
The problem is, part of the recession economists think a soft landing is likely is because the Fed started cutting rates, mitigating the recession risk. If the Fed doesn’t make any cuts this year because inflation spikes up again, then the recession odds are likely to jump up significantly. While that’s certainly not good news, it does bring lower interest rates.
And finally, here’s something I personally think should happen to reduce rates this year:
Ditch loan level price adjustments. These are pricing hits to increase interest rates, put in place by the government, based on perceived risk within the borrower profile. This is why a higher credit score gets a better interest rate than a lower one. There are loan level price adjustments for loan to value (meaning how much you are putting down), property type (condo vs. single family vs. multifamily) and occupancy (will you occupy the home or use it as a vacation place or rent it out). Fannie and Freddie put these in place and they are such a buzz kill. If we can’t ditch them completely, I think they need to be significantly reduced so borrowers don’t have to face these premiums on top of already higher than necessary interest rates. (Again, you’ll have to check out that previous posts to understand why rates are “higher than necessary.”
Big News!
Mortgage and Mimosa’s RSVP’s open tomorrow! There are only 50 spots so don’t miss your opportunity to grab one.
Plus you can also get your ticket now to the Future is Female on March 6.