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Back in the day, the Fed would typically wait to see the effect of a rate hike before implementing another. But in today’s world, virtually every increase has been baked in. The Fed started raising rates from near-zero in March 2022, ramping them up last year before adjusting them at a slower pace this year. After a pause in June, policymakers raised the rate this month for the 11th time.
There’s a method to the madness
“For better or worse, some of what we’ve seen has sort of defied historical patterns,” Sarah Alvarez, (pictured), vice president of mortgage banking at William Raveis Mortgage, told Mortgage Professional America in a recent interview. “In some ways, they [the Federal Reserve] are fighting a beast that may be a little less predictable than it has been in the past. At the end of the day, this is the story of the Fed’s work, but we also have these macroeconomic factors.”
Take the Russia-Ukraine grain deal, for example. Agreed to a year ago in Istanbul after being brokered by Turkey and the United Nations, Russia has pulled out of the pact as it engages in war with Ukraine. The aim of the deal was to release Ukrainian grain across the global market toward stopping the rise of food prices.
“All these things can have a pretty significant effect in terms of food prices,” Alvarez said. “It possibly speaks to how interconnected the economy is globally and how there are just so many influences that can sort of change the narrative.”
And let’s not forget the scourge of COVID-19. While the peak of its wrath has substantively subsided, its after-effects are still being felt, Alvarez suggested. “Of course, having COVID and that situation that was so unique and so drastic in terms of the changes that brought along in such a short time,” she said, “whether they’re right or wrong, the Fed is acting on the belief that they needed to act very quickly in order to counteract what was a very drastic and fast change.”
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