Fed hikes interest rates – but what does that really mean to you?

Published 4 months ago

The Federal Reserve Board raised the Fed Funds rate from .25% up another .25% to .50% effective rate on March 16th, 2022. This is the first time they've done this since 2018.

They also announced that their target for the effective Fed Funds rate by the end of 2022 is between 1.75% and 2.00%, so that translates to a possible .25% increase at each of the Fed's six remaining policy meetings this year. In addition, they project the rate to be at 2.8% in 2023, as their current thought is that a Fed funds rate above 2.4% will 'curb inflation.'

Yeah I know but who cares and what's with the bad news, Joe? Well let's benefit from it and talk about the good news:

Good News #1: Feds fund rates do not directly set the mortgage rate that you'll get on your home loan. This means when you hear doom and

gloomers talking about 'the Feds just raised your rate again' - they're not talking about your mortgage rate.

Good News #2: Since it has been announced, these increases have already been / are most likely already being priced into the mortgage rates that

we see today, so that means if they increase less than announced, then that could be GOOD for mortgage rates.

The thing to lookout for here is what they do with monetary policy - specifically reducing their balance sheet. If they do this aggressively, it could cause way worse problems than an increasing Fed funds rate ever could. There's your raincloud - you're welcome.

So don't get freaked out - increasing Fed funds rates do not automatically mean higher mortgage rates, and rates for housing here in the US are still near "historic lows." Having a solid plan now when financing real estate is CRITICAL, and that's why we do a total cost analysis for each and every client.

If you're looking to finance real estate in today's market, you owe it to yourself to reach out to get your free, customized, total cost analysis. It will help tremendously.