By KIMBERLEY HAAS
The president and CEO of the Federal Reserve Bank of Philadelphia knew he was facing a tough crowd when he took the stage during a Monday morning session at the Mortgage Bankers Association’s annual convention and expo.
“I stand here this morning fully aware of the mood in this room and I am also fully aware of the way the actions we on the FOMC have taken over the past 18 months in our efforts to tame inflation to get it back to a 2% annual target have, in their own way, contributed to the current mortgage climate,” Patrick Harker said.
Harker said he met with community members this summer to see firsthand the impacts that monetary policy was having on the local level. Rising mortgage rates was brought up in nearly every conversation, he said.
Harker said the housing market is key for the U.S. economy, and has great importance in society overall. He said that moving forward, he sees the value in holding the federal funds rate target range steady.
That range is at 5.25% to 5.5%.
Harker received applause when he said, “I believe we are at the point where we can hold rates where they are.”
But despite the good news, Harker said rates will have to stay high in order for the Feds to reach their overall goals on inflation. He subscribes to the theory of “higher for longer.”
“You may have noticed I didn’t tell you how long we will need to stay high. Unfortunately, I simply can’t tell you that. My forecast is based on what I know at 10:30 in the morning on Monday, October 16, 2023. As time goes on, as adjustments are completed, and as we have more data and insights into underlying trends, I may need to adjust my forecast,” Harker said.
Harker added that if inflation were to rebound he would not hesitate to support further rate increases.
Harker was speaking from his perspective at the MBA convention, and his views do not represent the Federal Reserve, which has come under fire recently for their policies.
In a letter dated Oct. 9, leaders at the MBA, National Association of Realtors, and the National Association of Home Builders shared their concerns with the Federal Reserve System’s Board of Governors that ongoing market uncertainty about the Fed’s rate path is contributing to recent interest rate hikes and volatility in the real estate market.
Actions by officials at the Federal Reserve do not dictate mortgage rates, but do influence them.
“Today, the spread between 30-year mortgage rates and the 10-year Treasury yield is at historically high levels, signaling deep-seated uncertainty about where the Fed is headed,” the letter said.
The letter said “the uncertainty-induced mortgage-to-Treasury spread is costing today’s homebuyers an extra $245 in monthly payment on a standard $300,000 mortgage.”
It urged officials at the Fed to assure the market that they do not contemplate further rate hikes and that they will not sell off any MBS holdings until the housing finance market has stabilized and mortgage-to-Treasury spreads have normalized.
“Housing activity accounts for nearly 16% of GDP according to NAHB estimates. We urge the Fed to take these simple steps to ensure that this sector does not precipitate the hard landing the Fed has tried so hard to avoid,” the letter said.
On Sunday, the Mortgage Bankers Association’s chief economist told convention attendees that they do not expect another increase in the federal funds rate target range this year.
Michael Fratantoni, chief economist and senior vice president of research and industry technology, projected there will be at least two cuts in 2024, and possibly more in 2025.
“We do think the Fed is at the top of their cycle. The next move is a cut, likely in the spring,” Fratantoni told the audience.
MBA’s current forecast is that mortgage rates will be 6.1% at the end of 2024 and could reach 5.5% at the end of 2025.
The MBA convention and expo is being held in Philadelphia at the Pennsylvania Convention Center. It will wrap up on Wednesday.
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