Fed May Not Be Hiking Until March, But Higher Rates Are Here Today

In the past 2 weeks, press coverage of the Federal Reserve’s policy outlook has ramped up significantly. The Fed is now expected to start hiking rates in March and to hike more than previously expected in 2022. If you think that gives you time to get a mortgage before rates go up, think again. While Fed policy has an impact on the entire financial market, the only major rate they control is the Fed Funds Rate–an overnight rate that applies to the shortest term borrowing between large financial institutions.  That’s a distinctly different animal than mortgage rates. The Fed Funds Rate is currently expressed as a target range between 0% and 0.25% also known as the lower bound or simply “zero.”  In 2015, the Fed managed to embark on a series of hikes culminating in a 2.25-2.50% range by the end of 2018, but from 2009 through most of 2015, it was also at the lower bound. Despite that, mortgage rates found a way to jump by more than 1% in less than 2 months in the middle of 2013 (a brutally fast move in the mortgage world).  The culprit was the taper tantrum: the market’s reaction to the Fed signaling that it was considering winding down (or “tapering”) its rate-friendly asset purchases. The most sincere tapering threats began in May 2013.  Fed policy officially mentioned tapering on June 19.  By the first week in July, the damage was done.  It was almost 6 months later before the Fed officially announced the tapering plan, and almost another 2 years before they finally lifted rates from the zero lower bound.
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