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Are Rates Finally Leveling Off?

Hello everyone. Welcome back to the Mortgage Rundown. Today we are going to talk about what's happening with interest rates.

Can it be true? Have interest rates finally leveled off as we've seen the 10-year yield rise about 2.6% after hitting the lows in August of 2020?

We've seen interest rates drop decade after decade, when have we really seen rates rise this much? Well, there have been a few times in history where this has happened. You have to go all the way back after rates hit a low in October 1998 before rising around 2.6% in January 2020. Before that was the rise in rates from 1993 to 1994 where the 10yr went up about 2.8% in yield.

The phenomenon we are dealing with today with this level of inflation in the modern world is very unique. Inflation has been stubbornly low for years and for very developed nations, it's not a surprise. There aren't as many untapped opportunities in a modern society vs a developing nation.

Nonetheless, inflation is a huge concern if the Fed doesn't slow the economy down and at the same time not be too aggressive where they actually cause a recession. It's a delicate balancing act as a threat of a recession will put a lot of pressure on them to back off.

It's very important to keep an eye on a few things. First and foremost is inflation; if we don't start to see inflation come down then the Fed may have to adjust their policy and raise rates more rapidly which is going to push up mortgage rates and likely will push down stock prices. I do believe the Fed is taking the necessary steps to fight inflation and we should see it start to come down very soon. This should play out over the coming months.

The other important thing to watch is the unemployment rate and the economy. If we see inflation dropping rapidly, corporate earnings dropping rapidly or the unemployment rate moving higher quickly, then we could actually see the Fed back off the projected increases to the benchmark rate, which in turn will bring mortgage rates down some. The timing on this could very well be later this year or even next year, it really depends on the impact of the moves they have already made.

That's it everyone from the capital markets desk this week. Thank you all for watching and have a great day.