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The Fed, The Mortgage Market, & Hockey Pucks

The Federal Reserve met this week, and announced another 0.250% increase to their target rate, bringing it to the highest level since 2007. So what does this mean for mortgage rates?

Since this increase was widely anticipated, it was already priced into current mortgage rates. In fact, after Fed Chairman Jerome Powell's press conference, rates continued on the downward trend that they've been on the past week or so. While Powell was non-committal on whether this would be the final rate cut of this cycle, the market appears to believe that it will be. Powell acknowledged that the market is cooling, that credit is tightening (in part due to the concern in the banking sector), and that there is a chance for recession.

Given all of this, it's logical to wonder why the rate increase yesterday was necessary. The answer lies in the data and in the Fed's history of going too far with both rate tightening and loosening. The Fed relies on data to make their policy decisions, however they admit that there is a lag between Fed action and appearance in the data. Much like steering an aircraft carrier, actions don't bring immediate results. The result of this is what we saw this week - an admission that the economy may enter a recession, but further recession-creating action, taken because current data shows an economy running too hot.

This is where the Fed could take a cue from Wayne Gretzky.

As the greatest hockey player of all time, Gretzky once said "a good hockey player plays where the puck is. A great hockey player plays where the puck is going to be." If they're looking at current (and arguably stale data), it's clear that this Federal Reserve is not looking at where the puck will be.

What does this mean for mortgage rates? I believe they've likely peaked for this cycle. We've seen an overall decrease in the past two weeks, and while there will continue to be some volatility, the overall trend should continue downward.

If you're in the market for a mortgage, or if you'd simply like to discuss the market and your individual situation, we're here to help.

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