Fed Rate Increases by .75

By
Mortgage and Lending with Mortgages in AZ, CA, CO, DE, FL, GA, MD, MN, MT, NC, NJ, NV, OK, OR, PA, SC, SD, TN, TX, UT, VA, WI NMLS #138061 MMCD #1141

The Fed Raises Rates .75 - June 15, 2022

 

The Fed has announced that they are raising the Fed funds rate by .75 as a result of this week's meeting.  This rate hike represents the biggest single increase since 1994, and comes on the heels of a hotter than expected inflation report last week.  The Fed is not only increasing their rate, but in doing so, signaling their intent to put all means necessary toward stemming inflation that caught them by surprise, with many Federal Reserve members indicating inflation would be "transitory" as recently as last quarter.  

 

What does this mean for consumers?

It's important for consumers to understand exactly what the Fed funds rate is.  It is the rate at which banks borrow from each other and from the Fed itself.  The Fed funds rate is also tied directly to the "Prime" rate, which means changes made by the Fed have a direct impact on debt vehicles tied to prime - credit cards, home equity lines of credit, and similar revolving credit tools.

There is often a misunderstanding in thought that the Fed rate directly influences mortgage rates, but this is fallacy.  The reason for this is that mortgage backed securities (the large pools of mortgage loans purchased by investors and traded in the markets as securities) are influenced heavily by inflation, and the Fed's actions in rate direction influence inflation up or down.  When the Fed cuts rates, this tends to speed up inflation as it lowers borrowing costs, making it easy for borrowing and spending to occur cheaply throughout the marketplace.  When the Fed cuts rates, it generally leads to lower unemployment and a more inflationary environment (which is OK when inflation gets too low, or stagflation occurs).  In short, Fed rate cuts stimulate the economy.

On the opposite end, Fed rate hikes curtail a hot economy, often leading to increased unemployment levels and in many cases, recession.  In a recessionary environment, inflation tends to fall, and in our current environment of high inflation, that's the Fed's goal.  Since the return on mortgage money is a fixed dollar amount in amortized interest payments, when the dollar loses value, mortgage rates go up.  When the dollar becomes more valuable (as inflation eases), mortgage rates tend to drop.

We see this today, with mortgage rates improving roughly .25 percent since the Fed announcement.

Borrowing when the Fed acts

When it comes to buying a home, or borrowing mortgage money, what's the right move when the Fed acts?  Well, the answer is tough because mortgage rates are driven by far more than JUST the Fed, though they have a huge influence that can't be understated.  Generally speaking, when the Fed is raising rates, it will likely trigger a period of lower mortgage rates in the not so distant future (especially if the economy sees recession).  This means it may not be ideal to may excessive closing costs on purchase mortgages (or extra 'points' as mortgage fees are typically discussed), because there may be a refinance opportunity in the future.

It's also VERY important to not fall for ignorant advertising - I believe there are far more dumb people in the world than evil people, but regardless of intent, there tends to be a lot of bad advertising when the Fed raises rates - fear-based marketing like "refi now before the Fed raises your rate!" occurs to get people to refinance, when in reality, the Fed rate increases often lead to lower rate periods where waiting would be of benefit.

In terms of Home Equity Lines of Credit, most of these products are tied to the 'prime' rate, so payments on these products can be expected to rise, so consumers should be aware and if considering these products, expect rates and payments to increase on them in the coming months.

 

For now, we're enjoying some much needed relief to mortgage rates, but it will be important to keep an eye on supply chain, geopolitical, and VODI-related news, as well as upcoming job and inflation reports which will signal how well the Fed's actions are reigning in inflation and getting the economy back on track in a healthy way.

Posted by

John Meussner
NMLS ID #138061

It's more than a house - it's home.  So we offer a wide range of mortgage products at competitive prices to help our clients achieve financial security at home.  While we get great feedback on our prices and products, many clients say their favorite part of working with John Meussner & MasonMac is the level of service provided along the way.

Purchase money loans, Refinance, Renovation, Jumbo, FHA, VA, USDA, nonQM, HELOCs, and more

Licensed in
AZ, CA, CO, DE, FL, GA, MD, MT, NC, NJ, NV, OK, OR, PA, SC, TN, TX, UT,
and VA

JMLoans.com

 

(484) 680-4852
Call or Text

Email Me

My Blog

Loan Options

 

Comments (14)

Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em: golfArizona@cox.net

Thank you for the great information in your blog today to share with us here on the Rain.  Make it a great day! bill

Jun 15, 2022 02:18 PM
John Meussner

Thank you Bill, appreciate you stopping by to read!

Jun 15, 2022 03:05 PM
Andrea Bedard
Thompson Company, REALTORS® 240.593.2860 - Silver Spring, MD
Fluent in Real Estate & German, M.A. ABR ASP CIPS

I am so appreciative of you penning such an informative post John Meussner (another one). It's easy to understand and I'll most definitely be sharing it with a couple of buyers who are just beginning their journey. I am sure it will help them understand the Fed's actions, and help them to not panic! I, too, emphasized the opportunity of a refi down the road. Higher borrowing cost will hopefully result in a less competitive market - although I'm still waiting to see more of an impact in the lower price points especially. There's still so very little inventory. 

Jun 15, 2022 02:27 PM
John Meussner

Thank You Andrea, appreciate the kind words!  Long way to go before the market's balanced out, but we'll get there!  Hopefully there's at least some rate relief in the not so distant future.

Jun 15, 2022 03:07 PM
Jim Patton
Aspire Home Real Estate 209-404-0816 - Modesto, CA
Realtor - Stanislaus ,Merced, San Joaquin Counties

Thank you for this information John Meussner.  I know today's action by the FED is going to cause a lot of people to panic about mortgage interest rates. 

Jun 15, 2022 03:50 PM
John Meussner

It always does Jim Patton , but definitely not bad news for our rate sheets

Jun 16, 2022 12:15 PM
Anna Banana Kruchten CRS, Phoenix Broker
HomeSmart Real Estate BR030809000 - Phoenix, AZ
602-380-4886

John many newer agents and the general public really don't understand what rate hikes mean - and you've explained it in a easy to understand manner. I saw an easy to understand chart that I'm going to share with my SOI.

Jun 15, 2022 04:06 PM
John Meussner

Thank you Anna : )

Jun 16, 2022 12:15 PM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Hi John:

No doubt some buyers may be in a panic and wondering what will happen. Thanks for a well-written and thoughtful analysis on a complex subject and the issues.

Jeff

Jun 15, 2022 05:55 PM
John Meussner

Thanks Jeff!

Jun 16, 2022 12:15 PM
Buzz Mackintosh
Mackintosh REALTORS - Frederick, MD
“Experience, reliable, leadership”

This Administration is asleep at the wheel if "inflation caught them by surprise" ! They are the cause with all the freebees they have been doling out.

Jun 15, 2022 06:49 PM
John Meussner

The Fed is either intentionally screwing things up, or they're really, really out of touch with the economy.  This is the trouble with high level executives and academics running the show, they're incredibly out of touch.

Jun 16, 2022 12:15 PM
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker/REALTOR® - Kalispell, MT
Helping your Montana dreams take root

This is a very easy to understand overview of the impact of the fed increase. Thank you!

Jun 16, 2022 04:41 AM
John Meussner

Thank you Kat, appreciate you stopping by to read!

Jun 16, 2022 12:14 PM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good morning John,

Thank you for a very well informed post. I appreciate your words of wisdom at the Zooming meeting too! Many don't understand what it means when the Feds raise the Fed Rate. You have made it easy to understand and what the raising is intended to accomplish!

Jun 16, 2022 04:55 AM
John Meussner

Thank you Dorie, appreciate it! : )

Jun 16, 2022 12:14 PM
Nina Hollander, Broker
Coldwell Banker Realty - Charlotte, NC
Your Greater Charlotte Realtor

Great advice, John... so many people really don't understand the nuances of rate changes and their impact.

Jun 16, 2022 05:35 AM
John Meussner

Thank you Nina!

Jun 16, 2022 12:13 PM
Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hello John - I may remember this post when it comes to a discussion of dumb versus evil. . . 

Jun 16, 2022 07:45 AM
John Meussner

It's a lot easier to accept than the alternative in the world's current state of affairs : )

Jun 16, 2022 12:13 PM
Margaret Rome Baltimore 410-530-2400
HomeRome Realty 410-530-2400 - Pikesville, MD
Sell Your Home With Margaret Rome

John Meussner  Excellent, well written, easy to understand, and feature worthy!

Jun 16, 2022 09:53 AM
John Meussner

Thank you Margaret, appreciate it : )

Jun 16, 2022 12:13 PM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

John we are back into the 6%+ territory again, and I don't think we will see anything lower for awhile.

Jun 16, 2022 04:51 PM
John Meussner

Next couple month's inflation reports are likely to be pretty ugly - inflation was low in the summer of 21' and those are the year over year figures that'll determine the % - could be a rough summer, but I think rates come down in the fall.

Jun 17, 2022 03:14 PM
Stephen Turner
House Broker Realty - York, PA
The BIG Guy of NEW HOME SALES

Thanks for the insight, John. I hadn't thought about the HELOC aspect of this.

Jun 17, 2022 05:21 AM
John Meussner

Sure thing Stephen Turner thanks for taking the time to stop by and read the post! : )

Jun 17, 2022 03:14 PM
Sam Shueh
(408) 425-1601 - San Jose, CA
mba, cdpe, reopro, pe

Time to find out those true diehard buyers from casually interested.

Jun 17, 2022 01:35 PM
John Meussner

We shall see!

Jun 17, 2022 03:15 PM