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What the Federal Reserve's Latest Rate Hike Could Mean for the Housing Market

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What the Federal Reserve's Latest Rate Hike Could Mean for the Housing Market

Mortgage rates have finally topped 6%, and with more gains on the horizon, experts warn that the U.S. housing market could be moving toward a recession

September 21, 2022
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In its persistent efforts to cool inflation, the Federal Reserve has raised the short-term federal funds rate four times this year, and another increase is expected this week, the Los Angeles Times reports. The federal funds rate indirectly influences mortgage interest rates, meaning that for months, homebuyers and homeowners with adjustable-rate mortgages have upped their housing budgets and gritted their teeth through a worsening affordability crisis, and more upward pressure on the housing market means that conditions will get even worse before they get better. 

The federal funds rate currently fluctuates between 2.25% and 2.5%, but by the end of the year, Fed officials expect the rate to surpass 3%, possibly sending the housing market to the brink of a recession.

Fed Chairman Jerome H. Powell has repeatedly said that the Fed would raise interest rates until inflation was under control. Nevertheless, some lenders and investors looked at the economy in July and thought the Fed would take its foot off the monetary brakes, [Robert] Heck said.

That changed in August, however, when Powell and other Fed officials reiterated their determination to, as Powell put it on Aug. 26, “keep at it until we are confident the job is done.” Deliberately or not, the statement echoed the title of the memoirs of former Fed Chair Paul Volcker, who used high interest rates to lead the U.S. out of double-digit inflation in the 1980s.

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