What did the day after a Fed rate hike look like?

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How did the markets react a day after the Fed rate hike?

Yesterday’s statement from the Federal Reserve was far more dove-ish than Chairman Jerome Powell’s comments during his press conference. The Fed Chair made it clear that while the pace of rate hikes may slow, the terminal rate will be higher than previously expected and likely need to stay higher for longer. 

The Fed pivot trade continues to be the pain trade yesterday morning, as mortgages were once again in the red, with 10-year yields trading up in the 4.15%-to-4.20% range. The market will get two more CPI (consumer price index) readings before the next Fed meeting. 

Before then, we’ll have to contend with tomorrow’s employment report. Earlier this week the JOLTs showed an astonishing 437,000 jump in job openings, indicating the labor market was on fire. 

Where did mortgage rates end yesterday?

While mortgage rates started the day up, they ended the day down. A 30-year fixed rate mortgage closed under 7% on Thursday, ending the session at 6.95%. That’s still over double the 3.09% mortgage rate that was available at this time last year and a move downward is likely a welcome sign for homebuyers staying on the sidelines. Only time will tell if this ends up being a blip on a chart or part of a larger trend.

Is housing the cause of & solution to a recession?

The Mortgage Brokers Association voiced concerns at their annual conference that the current housing market may further push the U.S. economy into a recession, but will also help the economy get out of a recession as well.

The reasoning is that higher home prices have contributed to inflation. In response to inflation, the Federal Reserve has raised interest rates which has impacted mortgage rates and has slowed the housing market. MBA chief economist Mike Fratanoni stated that this slowing will further push the economy towards a recession early in 2023.

However, Fratanoni also stated that a lowering of house prices and reduction in mortgage rates could also spur the economy out of a recession. His thought is that once interest rates lower, home buying will pick up again, and that movement will help guide the U.S. economy out of a recession.

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