When will inflation pressures push up interest rates? That's what mortgage lenders are wondering amid all the inflation news this week. Federal Reserve Chair Jerome Powell has been testifying before Congress on the state of the economy. In front of the Senate Banking Committee today, Powell acknowledged the Fed isn't comfortable with where inflation is at, but he's not ready to take action yet.
"The challenge we're confronting is how to react to this inflation, which is larger than we had expected–or that anybody had expected," Mr. Powell said. "And to the extent it is temporary, it wouldn't be appropriate to react to it. But to the extent it gets longer and longer, we'll have to re-evaluate the risks."
Most Fed watchers say that it's safe to bet that the Fed will hold to its current strategy, including the bond-buying which has resulted in mortgage rates hovering at 3% or lower for much of this year. Of course, not everyone is excited about the current strategy and are calling on the Fed to start tapering those purchases.
For his latest article, we asked our Lead Analyst, Logan Mohtashami, for his thoughts on these topics. Mohtashami isn't predicting rising mortgage rates until next year, even though it would be helpful to cool off the housing market.
"Next year we will likely see a watered-down fiscal spending plan, plus the world economies will be further along in their recovery from the COVID-crisis," Mohtashami writes. "This environment will be more conducive to getting bond yields over 2%. And if that happens, mortgage rates will also go up. However, the notion that mortgage rates can blow up higher with the 10-year yield still below 2% seems like an urban legend."
Without substantial Fed action, rates should be low for the rest of this year.
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