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The Bullish Fed of 2022

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

Here we stand one week away from one of the most important FOMC meetings of the past decade. The Federal Reserve was moving very sluggishly to combat inflation prior to this summer and now has appeared to be much more hawkish than the market was estimating. 

There seemed to be some doubts that the Fed would raise interest rates 75bps next week, but after several hawkish comments from Powell and others, a 75bps move now appears to be a simple formality.  In fact, there are some small probabilities that the Fed actually raises rates 100bps. 

What is not so simple is what the Fed will do after next Wednesday’s meeting. A month ago, the market saw the Fed Funds rate capping out at around 3.5%. But as of today, the expectation is now closer to 4.125%, which means the market expects the Fed to raise 75bps next week, another 50bps in November, and 50bps again in December.

The Fed has become very bullish and is warning the market that they plan to do everything in their power to crush inflation. The CPI numbers published yesterday showed that inflation is still very much present over the past year and over the past month. If inflation was slowing down, it wasn’t by much.

That data and future inflation numbers will have a huge impact on Fed policy and with that, interest rates. We are already seeing mortgage rates near 14-year highs. 

Next week please keep an eye on the FOMC meeting and any language about forward guidance with rates, not just for the remainder of this year, but next year as well.

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