What’s Happening with Interest Rates?

 (Source / US Chamber of Commerce )

The Federal Reserve raised its key interest rate again earlier this month. That was the eighth time it has done so in the last year, and a few more small hikes are likely coming with inflation still high and consumer spending and the job market still hot.

Why it matters: The Fed’s actions have translated into higher interest rates for consumers and businesses, but the increases in rates have tailed off.

• For example, the average rate on a 30-year fixed mortgage peaked at over 7% in November. It has since stabilized at around 6.3%.
• On the business side, the average rate for a AAA-rated corporate bond peaked at around 5.4% in October and has since settled at around 4.6%.

Big picture: The slight drop in rates from late 2022 and their stabilization since indicates that the markets originally overestimated how much the Fed would raise rates. The markets now believe the Fed won’t raise rates much more than it has.

• This is good news for the housing market because, if it holds, it means the damage of higher mortgage rates is already in the rearview mirror.
• For businesses, it means borrowing costs are likely to remain where they are. That will allow for better planning and an increase in long-term investing.