Interest Rates and Housing Market

Most of the Federal Reserve’s interest rate hikes may be in the rearview mirror, but U.S. central bankers aren’t yet done making it more expensive to borrow money.

After spending all of last year raising interest rates at a speed unmatched since the 1980s, Fed policymakers are taking a different approach in 2023: Hiking interest rates at a slower and more deliberate pace. U.S. central bankers in February lifted interest rates by a quarter of a percentage point, the smallest rate hike since last March.

But the Fed’s more leisurely path doesn’t signal anything about its final destination. Interest rates are now at the highest since 2007, and the Fed still has more rate hikes up its sleeves. Policymakers could raise rates to 5-5.25 percent before it’s all said and done, signaling two more quarter-point moves from here, according to the median forecast among Fed officials from December.

Yet, there’s room for error in almost every prediction. Seven Fed officials saw a scenario where rates could rise even higher than that, with the most aggressive forecasts penciling in a 5.5-5.75 percent target range, the highest since 2000. Bankrate’s Greg McBride, CFA, meanwhile, settled on a 5.25-5.5 percent for the year in his 2023 rate forecast.

If trends continue on this path, the housing market and the market as a whole could grind to a halt or at the very least trigger a sharp recession in the hopes of cooling off the inflation rate. Be wary and ensure you use this time to save and spend modestly while paying off any standing debts you may have.



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