Business is booming.

Fed raises interest rate again – but at what price?

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He then alluded directly to the bank failures that sent shock waves through the industry, detailing the likely impact: “The events of the last two weeks are likely to result in some tightening of credit conditions for households and businesses and, thereby, weigh on demand on the labor market and on inflation,” he said.

“In principle, as a matter of fact, you can think of it as being the equivalent of a rate hike, or perhaps more than that. Of course, it’s not possible to make that assessment today with any precision whatsoever,” he said.

Banking concerns notwithstanding, the focus now is on curbing inflation, which “is still quite high, but it is slowing,” according to Fratantoni. While the job market is still quite strong, it is weakening, as evidenced by slowing wage growth. “Coupled with the advent of much tighter financial conditions after the events of the past couple of weeks, we are anticipating a much slower economy over the next few quarters — which should further bring down inflation per the Fed’s goal.”

He predicted mortgage rates would go down because of the Fed’s move: “Homebuyers in 2023 have shown themselves to be quite sensitive to any changes in mortgage rates,” he said.

“With this move from the Federal Reserve, MBA is holding to its forecast that mortgage rates are likely to trend down over the course of this year, which should provide support for the purchase market. The housing market was the first sector to slow as the result of tighter monetary policy and should be the first to benefit as policymakers slow – and ultimately stop – hiking rates.”

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