Despite the ongoing banking turmoil, the Federal Reserve Bank’s officials unanimously voted to increase its benchmark short-term rate by a quarter percentage point. It is the ninth consecutive rate hike and brings the benchmark federal-funds rate to a range between 4.75% and 5%, its highest level since September 2007.
“We are committed to restoring price stability, and all of the evidence says that the public has confidence that we will do so,” said Fed Chair Jerome Powell at a press conference following the meeting. “It is important that we sustain that confidence with our actions as well as our words.”
He also acknowledged recent banking turmoil is “likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes,” but added, “It’s too soon to tell how monetary policy should respond.” In their post-meeting statement, Fed officials reiterated that the banking institution “anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time,” opening the door to more future rate hikes. Inflation has remained stubbornly high despite slowing down to an annual rate of 6% in February, its smallest annual increase since September 2021.
Nevertheless, it should be noted that the 25 bps increase is a step back from the 50 bps hike, which was hinted at before bank problems made the headlines. The Fed’s language in its report also indicates that the extent of upcoming policies remains in the balance. “In assessing the need for further hikes, we’ll be focused on incoming data and the evolving outlook, and in particular on our assessment of the actual and expected effects of credit tightening,” said Mr. Powell.
Effect on the Housing Market
American households are keeping a close eye on the ongoing changes in interest rates, particularly on mortgage rates, as we approach the busiest season of the year for real estate. “Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines,” said NAR Chief Economist Lawrence Yun. “Moreover, we’re seeing stronger sales gains in areas where home prices are decreasing, and the local economies are adding jobs.”
February saw the largest monthly percentage increase in existing-home sales since July 2020, skyrocketing 14.5% compared to the previous month to a seasonally adjusted annual rate of 4.58 million. It is the first increase in the past 12 months. Year-over-year, sales fell 22.6%. The median existing-home price (nationally) compared to the previous year also slid for the first time in 131 months, declining 0.2% from February 2022 to February 2023 to $363,000. The median price in the South was $342,000, an increase of 2.7% from one year ago. The median price in the West was $541,100, down 5.6% from February 2022.
We’ll keep you updated on further developments. In the meantime, if you’d like more information about buying/selling or refinancing in today’s market, give us a call or drop us an email.
