On Interest Rates, Mortgages and More

Last week, the U.S. Federal Reserve increased its key interest rate in the range of 3.75% - 4.00% (the highest since 2008) and said it “seeks to achieve maximum employment and inflation at the rate of 2 percent”. Note: The current inflation rate is 8.2%.

Federal Reserve chair Jerome Powell said “The inflation picture has become more and more challenging over the course of this year ... we may ultimately move [rates] to higher levels than we thought at the September meeting.”

The interest rate news triggered price swings in various global markets on Nov. 2, with the S&P 500 down 2.6% for the week (see chart below).

Chart 1: S&P 500 (Oct. 31 - Nov. 4)

Separately, in the U.S. 30-year mortgage rates briefly rose above 7%, but closed the week at 6.95%. The following chart presents U.S. mortgage rates since April 1, 1971. Note: mortgage rates hit an all-time high of 18.63% on Oct. 9, 1981.

Chart 2: U.S. Mortgage Rates: April 1, 1971 - Nov. 3, 2022

Source: FreddieMac

OUR TAKE

• The Federal Reserve may continue to increase its key rate into early 2023, but the process of lowering rates seems less clear.

• Amid interest rate increases, employment layoffs and “hyper-inflation” concerns, current economic conditions continue to present challenges including the potential of a "black swain" event.

• As some investors discount these concerns and seek new opportunities, the Nov. 10 release of the U.S. Consumer Price Index should provide an indication of inflation trends.