3 takeaways for the Wednesday January 26th Federal Reserve meeting.

The Federal Reserve on Wednesday provided the clearest hint yet that it could start raising interest rates as soon as March

A .25% increase is expected. The market experts were predicting 3 rate hikes. Now they are predicting 4 hikes. This will be the beginning to the end of a 30 year fixed rate in the 2% range. We will most likely be in the mid to high 3% range for most of 2022. Traders are anticipating a funds rate by the end of the year of about 1%, from the near-zero range where it’s currently pegged.

With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the central bank said in a statement that concluded its two-day meeting this week.

The labor market is supposedly strong so they will be aggressive to combat inflation. The Fed chairman said it is their job to get inflation under 2%. However, he also was the one who said that they were not concerned about inflation when it went over 2%. This is very concerning as to how they will accomplish the decrease in inflation with the expected supply chain issues to continue into 2023 and a completely different type of market than they have ever seen. They are using traditional methods from the past that have worked before, but will they work now or is this more trial and error with the world’s largest economy?

Fed Chairman Jerome Powell said asset purchases also are likely to halt in March, and the central bank released a paper outlining principles to start “significantly reducing” the bond holdings on its balance sheet without indicating a specific time frame.

This will actually make the mortgage interest rates rise more  than the actual rate hike.  The committee did say the  central bank’s monthly bond-buying will proceed at just $30 billion in February, indicating that the program is expected to end in March as well at the same time that rates increase. This will make mortgage back securities a lot less attractive to investors and cause mortgage rates to increase. The Fed will be trying to  decrease the 9 trillion dollar balance sheets into other areas of the financial markets. This move has the potential to shoot mortgage  interest rates into the 4% range sooner than expected.

The sentiment in the financial markets has shifted very quickly. The Fed went from a tailwind to a headwind as it relates to rates. Market volatility will be high. Call me at 503-7013-4699 or email me at sbfreedom@gmail.com if you need more information or if you just want to run numbers.