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Where Are Rates Headed?

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

So far this year we have seen the Federal Reserve raise interest rates three times: 25bps in March, 50bps in May, and 75bps in June with a strong possibility that they raise them to 75bps again in July and 50bps in September.

With all this action by the Fed, it begs the question, how high will mortgage rates actually go?

It's important to remember that the Fed is making these moves to combat record inflation without harming the economy and causing a recession. At least that is what they have indicated to the market, that they will be successful in threading this needle.

But can the Fed thread this needle when inflation is so high and they are slamming the brakes so quickly? My belief is that the Federal Reserve will contain inflation, will slow the economy down, but we will see fragments of recession for certain industries, if not most industries for a period of time. I don't think it's possible the Fed can thread a needle with such a large and diverse economy and their only tool so far is raising interest rates quickly.

Moving back to interest rates, it appears they have started to level off and we've seen mortgage and treasury rates get some relief after hitting recent highs. If the Fed can contain inflation and not cause a recession, then rates might hold here or move slightly up. If they, however, hit the brakes too hard and recessionary fears plague the market, then we could see the rate come down somewhat.

And one final thought: we shouldn't be too fearful about the direction of mortgage rates. In my opinion, there is no normal level of interest rates and it's important to remember that interest rates have been on a 40-year trend of going down. Economic growth in a highly advanced economy needs lower rates for sustained growth, especially with a legislature so divided.

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