FOMC Commentary from MBA's Mike Fratantoni

The following is MBA SVP and Chief Economist Mike Fratantoni’s commentary following the Federal Reserve’s FOMC statement released this afternoon on monetary policy and the economy:

“As expected, the FOMC raised the federal funds target by 50 basis points at its December meeting. Perhaps more importantly for the mortgage market, they also signaled that they anticipate slower growth, higher unemployment, and higher inflation in 2023 than they had indicated at the September meeting. If recent trends continue with respect to consistent declines in inflation amidst an increasing risk of recession, we may be near the peak rate for this cycle, now expected to be just over 5%. MBA is forecasting a recession for the first half of 2023, as the full impact of these rate hikes is absorbed throughout the economy.  

“The housing market has certainly welcomed the recent decline in mortgage rates. This decline is reflecting market expectations of being near the peak for short-term rates, as well as increased signs that the US is headed for a recession next year. Weaker growth typically leads to lower long-term interest rates, including mortgage rates. MBA is forecasting that mortgage rates for 30-year fixed-rate loans, which were at 6.4% last week, are expected to drift down and end 2023 around 5.2%.

“Housing and mortgage markets benefit from both a strong economy, which supports growing household incomes, and also lower inflation, which translates to lower mortgage rates.”