Rate info from a lender

From the desk of Danny Sassoon at Citizen’s Bank* on Nov 2, 2022:

The FED just announced the latest rate hike of 75 BPS, which was expected and already baked/priced into the current mortgage rates. When the FED raises rates, mortgage rates do NOT immediately go up. The rates that do immediately go up are for 1) Home Equity Line of Credit, 2) Credit Cards, 3) Car Loans and any other loans that are variable and are tied to the Prime Rate.

Whenever the FED is raising rates it’s common to think “Oh this means the mortgage rates are going up tomorrow” but it’s important for you to know that this isn’t the case.

However, just because we knew the FED was increasing the rates today, it doesn’t mean this announcement isn’t important for the direction of rates. We look for what the FED is planning on doing in the future and that will determine how rates will fair today, tomorrow and the remainder of the year. Is the FED going to be more aggressive and raise rates more in 2022/2023? Is the FED going to take their foot off the pedal and ease up in 2023?

Unfortunately, the FED has basically admitted that they don’t know what they’re doing when it comes to inflation, rates and the ultimate recession that we find ourselves in. They’re taking a “wait and see” approach, which means that instead of having a plan to combat inflation and sticking to the plan, they are analyzing the data as it comes. If things are better than expected, they will start to pull back.

So, what did the FED say today and how are the markets reacting? The FED is hinting that it may finally be time to slow down these hikes, however it is too soon to tell. We still need to keep a very close eye on the Jobs Report (comes out the first Friday of each month) and the CPI Report (tracks inflation, comes out on next Thursday). These are the indicators the FED looks for when it’s deciding about future rate hikes. The market has barely reacted so far, which is typical, but we need to look at the data in the next week or so to see how things will fair going forward.

*Danny Sassoon is a senior loan officer at Citizen’s Bank. Feel free to reach out to him at 917-747-2121 or at danny.sassoon@citizensbank.com