Wall Street is buzzing over the shift in Federal Reserve policy—the era of loose, rock-bottom interest rates is out. In are a series of rate hikes as the central bank tries to put the clamps on spending and cool off inflation.
The policy move is designed to have a huge impact on borrowing, too, and we’re already seeing the fallout in mortgage rates, with 30-year mortgages crossing the 5% line yesterday, the first time since 2013. The central bank does not set mortgage rates, but its monetary policy more directly impacts 10-year Treasuries. Mortgage rates closely follow the trend line in long-dated Treasuries.
How high could interest rates ultimately go?
Following publication of the Federal Open Market Committee minutes yesterday, BofA Securities published an investor note saying the investment bank now predicts Jerome Powell and his colleagues will trigger a series of three consecutive 50-basis-point hikes at the May, June, and July meetings. After that, BofA economists see 25-basis-point hikes in every meeting stretching out to May 2023. When the dust clears, they see the Federal funds rate tripling from today’s level to the 3.25–3.50% range, all of which could ultimately add further turmoil to an already volatile U.S. housing market.
“Markets are close to our view,” write BofA economists Ethan Harris and Aditya Bhave. Here’s their chart:
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