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Boston Fed president: Slow growth

The Fed hikes interest rates 0.75% — what it means for real estate

The Federal Reserve raised interest rates by 0.75% Wednesday, the sharpest increase since 1994. The extreme hike marks a more concentrated effort to address worsening inflation — and further increases seem imminent. 

Wednesday’s announcement takes the benchmark funds rate level to a range of 1.5%-1.75%. Looking ahead, Fed members predict that rates will rise to a midpoint of 3.4% by the end of the year and 3.8% by the end of 2023. That’s a full percentage point higher than previous expectations stated, according to CNBC.

Signaling further concern, officials predicted that the unemployment rate will rise this year to 3.7%, and to 4.1% by 2024. They also indicated the likelihood of cutting rates in 2024, which, as The New York Times points out, indicates they are rethinking the current approach. Altogether, the meeting offered a pessimistic outlook with policymakers cutting a sentence from their statement which originally said that inflation would be able to moderate within a strong labor market.

“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” Fed Chairman Jerome Powell said at a follow-up news conference, adding that future decisions will be made “meeting by meeting.”

Following the announcement by the Fed, National Association of REALTORS® Chief Economist Lawrence Yun weighed in. “So far, the short-term fed funds rate that the Fed directly controls has risen by 175 basis points,” he explained. “But the 30-year fixed-rate mortgage has risen even more – by nearly 300 basis points. On the same $300,000 mortgage, the monthly payment has risen from $1,265 in December to $1,800 today.” It’s a stark picture that, Yun said, “will shrink the buyer pool.”

Shant Banosian, executive vice president of sales for Guaranteed Rate, sees reason for optimism in the rate hike.

“I welcome the rate hike,” Banosian told Agent Publishing. “I think it’s a good thing for our economy in a sense that the Fed is showing that it’s serious about doing something about inflation. I think it’s going to be good overall for mortgage rates.” 

Rising inflation had “created a lot of fear in the market that inflation was getting out of control. The Fed’s action today is creating some confidence in the market … we’ve already seen rates improve today.”

As for what’s next, Banosian, based in suburban Boston, points to the overall strength of the real estate industry, noting that demand is still high and it remains a sellers’ market.

“I personally believe that we’ve seen the worst of the rate increases,” he said. “I could be wrong, but I don’t think rates are going up to eight or nine percent. I think we’re at five or sixes all year.”

Updated: Boston Real Estate Blog 2022

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Expect an already slow economic recovery to slow down even more, the president of the Boston Federal Reserve Bank seems to be saying in both the Globe and Herald. Some tidbits from the Fed’s Eric Rosegren:

— The government needs to keep stimulating the economy, which is still quite weak, Rosengren suggests.

— There’s a worry that the economy could fall into Japanese style “deflation,” but Rosengren thinks that can be avoided.

— The Fed doesn’t look like it will hike interest rates for a while.

— Rosengren is cutting his estimates of economic growth in the second half of this year.

— Last but not least: Rosengren says a full housing market recovery is dependent on creation of new jobs:

The housing market is also showing signs of slowing now that the government’s popular $8,000 home-buyer tax credit has expired, he said. There’s a strong correlation between high unemployment and a sluggish housing market, he noted.

“To get foreclosures down, you need an improvement” in the employment picture, he said. Housing prices should remain flat as a result, he said.

File under: What a lousy day to quit smoking