Federal Reserve interest rate hike – what happens next?

Mortgage Professional America turned to Sarah Alvarez (pictured), vice president of mortgage banking at William Raveis Mortgage, for insight. “I think it’s essentially baked into the market already,” Alvarez said of the imminent 0.25% hike. “It’s been pretty consistent.”

Focused on tone

Given that another rate hike is all but a foregone conclusion, Alvarez is focused more on the tone of the Federal Reserve chairman’s remarks at meeting’s end. “At the end of the day, this is the story of what one might consider now an epic battle against very stubborn inflation,” she told MPA during a telephone interview. “Even more than a question of what happens will be the tone of what the Fed chair says. Are they going to fall into more of a dove-ish or hawkish category?”

Signs have consistently emerged that the Fed’s actions have had the desired effect, Alvarez noted. As evidence, she pointed to the latest CPI report showing inflation moderating to 3%. But seemingly incongruous data in other areas, such as robust employment numbers, contradict the idea of inflation – let alone a recession as many had predicted – and require more tinkering from the Fed to curb consumer spending.

“The inflation numbers, when they were released two weeks ago, they actually showed more signs of improvement suggesting that the work the Fed has been doing actually has been successful,” she said. “But at the same time, we also received jobs report information indicating that still remains such a robust piece of the economy. Unfortunately, because of that, we’re still in a position where the Fed’s work is not done yet.”

She agreed on the incongruity of strong employment numbers against a backdrop of supposed economic malaise fueled by inflation. “It defies what the expectation would be,” she said. “In terms of seeing the effects of all these increases the Fed has done, the general rule is that it takes about a year to see the impact. So we’re still really feeling what the initial impact is of those raises,” she said of consistent rate hikes from the Fed that began March 2022.