Federal Reserve Mortgages and Bonds

Don’t look for stimulus money in your stocking this year. Instead, how about three interest rate hikes for 2022! Merry Christmas from your friends at the Federal Reserve.

I’m sure that’s what you wanted. The Fed has been hoping that the recent inflation we are seeing was going to be transitory but now is accepting that it will be more persistent and is therefore taking action.

When the pandemic started, the Fed was pumping tons of money into the economy to keep businesses afloat, reduce unemployment and pay for government spending. As the economy recovered, prices started to rise, and that was exacerbated by some bad economic policy.

To combat inflation, the Fed is using one of its monetary tools to affect the amount of money in the economy. It is going to dial back its bond purchase program over the next few months thereby reducing the amount of money in circulation. This will in effect cause interest rates to rise. Many economists thought the Fed had been too slow in tightening the money supply and should have taken these or other steps months ago to keep inflation in check.

The chairman of the Fed just said that he expects interest rates will rise three times in 2022. You may not see an immediate rise in interest rates, as this method is designed to be implemented over several months. He also stated that he could see rates rising three to four times in 2023.

This chart shows mortgage rates, yields on the 10-year Treasury Bond and the Federal Funds rate since 2007. This should be the wake-up call to everyone looking to do medium to long-term financing on things like mortgages and car loans. Act soon. Additionally, rising interest rates may cool down the real estate market a bit, too, especially at the low end.

Steve Hyman is the broker and owner of Century 21 Sunset Properties. He can be reached at 726-6346 or century21sunset.com.

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