Market Commentary 11/04/2022

Fed Raises Yet Again As US Employment Data Substantiates Further Hikes

Markets were in rally mode Friday at the heels of another solid employment report. There have been some signs that wage inflation is moderating. One never quite knows how the market will react to an important economic report, but one thing for certain is the mood was sour heading into Friday’s number. This is especially true after Fed Chairman Jerome Powell’s hawkish bent earlier in the week. Interest rates will need to be higher for longer to combat a stubborn inflation problem. The Fed raised short-term interest rates by .75 basis points for the 4th time in a row. We now see the terminal rate between 5% and 5.50% which will be achieved by the middle of next year. 

Financing Around Inflation

Financing costs, including those for autos, homes, and commercial real estate, have moved up. Who could have imagined a 30-year fixed rate mortgage would be over 7% this year, after beginning the year in the low 3% range (jumbo rates are lower).  With the surge in rates, interest-only loan options are the product of choice in high-priced areas. This product can help offset out-of-pocket financing costs, although the payment does not reduce the principal balance. Unless prices drift lower, this product is one way to manage housing expenses with the hope that interest rates move lower over time.