Here We Go…
It is obvious, rates ARE rising. They have been rising since November with a couple jumps due to the Fed's announcement of cutting back on bond purchasing. January was one of the toughest months for mortgage rates in the past decade, with the average 30 year rate jumping from a 3.21% to a 3.73% in just over 30 days.
Just as it seemed that the damage was over and the rates were leveling off, the monthly jobs report was released. Going into the days before the jobs report, analysts did not see it having much of an impact. They expected a weaker number due to Omicron's impact and were not worried about it, as the Fed is much more concerned with inflation as opposed to the labor market. However, the report was released and the jobs number was higher than expected, at almost 470,000 jobs. In response, the Fed rate hike and bond yields increased to their highest levels in more than 2 years. In effect, mortgage rates increased 40 basis points from market close on Thursday, taking the average 30 year conforming mortgage rate to a 3.87%.
Initially, the consensus for rate spikes was that there were going to be 4 spikes in 2022. However, many top investment banks are now revising their original prediction with a more aggressive approach. Some, such as Bank of America, are predicting as many as seven 25 bps spikes in total for 2022, one for each remaining Federal Open Market Committee(FOMC) meetings. At last week’s meeting, Fed Chairman Jerome Powell gave the notion that the central bank will wind up its bond purchases and will move to raise rates as much as are needed to tame inflation. This makes a compelling case to a potential slip-up from the Fed in regards to keeping rates low in the second half of last year. Ethan Harris, global economist at Bank of America stated “The striking thing about chair Powell’s press release was that in effect he made a compelling case that the Fed should have already spiked rates in the second half of last year. The only thing missing from the narrative was, ‘and so, we are behind the curve and are hiking today.’”