By Ryan Casey Stephens, FPQP®
Special Contributor
The events of the second half of last week left mortgage lenders nationwide in a state of shock.
Experts were almost unanimous in the hope we’d see lower mortgage rates this week following another Fed rate hike, but we received quite the opposite. In the span of two days, we saw real-time rates rise above 7 percent on a 30-year fixed – a level not seen since 2002. With uncertainty all around, we have so many unanswered questions.
Here are the big three I think you should ask this week.
How did we get here?
Following the announcement of a .75 percent increase in rate, Fed Chair Jerome Powell answered questions in a press conference. In the two days that followed, stocks and bonds largely plummeted as panic set in on markets.
So what happened?
It’s difficult to pinpoint one or two sure causes for panic-selling. I believe the most plausible explanation centers on the market losing faith in the Fed’s ability to control inflation. Chairman Powell repeatedly stated the Fed would not let up until the problem was solved, and would even consider greater tightening if needed. That’s great, right? It seems markets expected he would reinforce the idea that the rate hikes we’ve already seen should begin to work soon. Since that was absent in his comments, many wonder whether he believes what they’ve done will work.
So, is it a recession now?
On Thursday we’ll get the results of the final revision to the second quarter GDP. If this remains negative, we’ll officially have two consecutive quarters of contracting GDP, the definition of a recession to many.
So, are we currently in a recession? There are many who’d argue the oversimplicity of the two-quarter definition since the mean of economic measures still shows our economy continues to expand. The Conference Board, the group that officially labels recessions, always does so in hindsight, so we’ll just have to wait to see.
When will this all end?
Friday brings us the Fed’s favorite measure of inflation, the Personal Consumption Expenditures report. It strips out food and energy because they can cause wild fluctuations in the data. The consensus seems to be that we’ll see a higher read on inflation in this month’s edition. So when will this all end?
If you watched last week’s video, I mentioned hope being on the horizon. We tend to measure inflation year to year. By the end of 2021 inflation was already on the rise, so October, November, and December’s PCE ought to look less dramatic than this summer’s readings. I’m not insinuating real prices will start heading down, but it would mean the rate of increase would be slowing. When we see that happen, we’ll know there’s light at the end of this tunnel.
Ryan Casey Stephens FPQP® is a mortgage banker with Watermark Capital. You can reach him at [email protected].
