Inflation Is Cooling: The Federal Reserve Lowers Rate Increase To 50 Basis Points

The Federal Reserve Lowers Rate Hike To 50 Basis Points As Inflation Cools

Buildup to the widely anticipated Fed announcement caused markets to rally before a sharp pull-back afterward; in addition to a small increase to the 10 Year Treasury after falling for a month. Despite government reported inflation falling sharply for a fifth consecutive month in November, after peaking at 9.1% in June, the Fed signaled their intention to continue raising rates all throughout next year without a rate drop until 2024.

"The inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases," said Fed Chair Jerome Powell. "But it will take substantially more evidence to give confidence that inflation is on a sustained downward path."

Note: As of December 14, 2022
From December 2008 - present, date reflects the midpoint of the Federal Reserve's target range.
Chart: Gabriel Cortes / CNBC Data Source: The Federal Reserve New York

Whether or not they stick to that plan remains to be seen as there will certainly be a lot of political pressure to lower rates if we slip into a big recession in an election year. This aggressive monetary policy appears to be reigning in price and production increases caused by the pandemic giving homebuyers some optimism to shop again as mortgage rates decline. 

After recently surpassing 7%, mortgage rates have fallen over the past month giving homebuyers some relief with improved affordability. As rates continue to fall almost a full percentage point from their peak, the Mortgage Bankers Association reported an increase in demand for purchase loans in five of the last six weeks. The lower hike is great news for a beleaguered mortgage industry that faced unprecedented rate increases in 2022 after a record low 2021. 

Sudden rate increases caused loan volume to drop, refinances to virtually disappear, and intense margin compression forcing lenders to cut costs via rounds of layoffs. Many small and mid-tier lenders went out of business altogether. While many mortgage executives view 2022 as worse than the crash of '08, there is a lot of cause for optimism about next year as equilibrium returns to the housing market. 

The mortgage market is cyclical and goes through difficult periods, however, this year has truly been unprecedented. Many mortgage professionals are job searching for the first time in their career. When combined with the innovation delays caused by the crash and subsequent legislation, Dodd-Frank, the industry as a whole can't seem to catch a break in terms of innovating the tech stack, process, and customer experience with mobile. 

2022 Will certainly be a year to remember, but the future still belongs to the innovators.