Fed Raises by 25 Basis Points
Last week saw significant economic news causing mortgage market volatility, but mortgage rates remained surprisingly steady. The Fed increased federal funds rates by 25 basis points to their highest since August 2007, amid ongoing banking sector issues. Future monetary policy will depend on economic data and banking industry developments.
⭐️ Check This Out
- The Fed, acting like a parent cutting off a child's excessive candy intake, raised interest rates again, seemingly telling inflation, "No more sugar for you!". Lawrence from NAR also has some choice words to say.
- Zillow's ChatGPT: because chatting your way to a new home is so 2023.
- Job vacancies decreased in March to a nearly two-year low, suggesting a potential easing in the U.S. job market.
- March 2023 saw a moderate increase in home prices nationwide, but factors like inflation, slowing job and wage growth, and potentially higher interest rates have dampened the market.
- Profit margins drop to a 2 year low on US Home sales. This is probably a good time to return that 10-step get-rich-quick real estate program you bought at 3am.
📊 Market Update
The Employment report showed moderate job gains with 253,000 jobs added in April, and a drop in unemployment rate to 3.4%, matching the lowest since 1969. Strong wage growth, up 4.4% year-over-year, may increase future inflationary pressures.
ISM national services sector and manufacturing indexes were as expected, at 51.9 and 47.1, respectively, showing preference for services over goods.
Investors will monitor the banking sector for signs of wider troubles and watch for elaboration on Fed's future monetary policy plans. This week's key report is the Consumer Price Index (CPI) on Wednesday, a major monthly inflation indicator.
Fed Raises by 25 Basis Points
So, the Federal Reserve (or the "Fed") has just decided to raise their target interest rate by a quarter of a percentage point, or 25 basis points. You might be wondering, "What does that mean for me?" Well, let's break it down in simple terms.
Firstly, what's the Fed's target interest rate? Think of it as the "price" of borrowing money. When banks want to borrow money from each other, they use this rate as a guide. When the rate goes up, it becomes more expensive to borrow money, and when it goes down, it's cheaper.
Now, you might be thinking, "But I'm not a bank, why should I care?" The answer is because these changes can trickle down to you, the consumer.
When the Fed raises its target interest rate, it can become more expensive for banks to borrow money. Banks, in turn, usually pass on these costs to their customers by increasing their own interest rates for things like mortgages, car loans, and credit card interest rates. So, if you're looking to borrow money or already have loans, you might end up paying more.
On the flip side, if you're a saver, an increase in the Fed's target interest rate could be good news. Banks often increase their savings account interest rates in response, meaning the money you've got squirreled away in your savings account could grow a bit faster.
A Pause by the Federal Reserve
Now, what if the Fed decides to pause, or not change the interest rate at the next meeting? Based on history, a pause usually signals that the Fed is trying to balance economic growth and inflation.
Inflation is when prices for goods and services increase over time, and it's something the Fed tries to keep under control. When the economy is growing too fast, prices can start to rise rapidly, and the Fed might raise interest rates to cool things down. But if they raise rates too much or too quickly, it could slow down economic growth too much.
So, if the Fed pauses, it might mean they think the current rate is just right for balancing growth and inflation. That means, at least for a while, you might not see any major changes to your loans or savings interest rates.
Remember, the Fed's actions are a bit like turning a big ship—it takes time to see the full effects. But by keeping an eye on what the Fed is doing, you can get some clues about where the economy (and your wallet) might be headed next.
🗓️ Economic Calendar
Wednesday
- CPI - measures the change in the price of goods and services from the perspective of the consumer.
- Core CPI - measures the changes in the price of goods and services, excluding food and energy.
Thursday
- Initial Jobless Claims - measures the number of individuals who filed for unemployment insurance for the first time during the past week.