MBA Economist Says Inflation Isn’t Transient: Here’s What It Means For Interest Rates

Inflation is not transient, says an economist. Here’s what that means for the future of mortgage interest rates. (iStock)

Inflation is rising at its highest rate in more than a decade, a trend that one economist says could continue for the next several years.

The inflation rate rose 5.4% annually in September, the highest in 13 years, according to the latest Consumer Price Index (CPI) from the Bureau of Labor Statistics. Now economists are discussing what this higher level of inflation means for today’s economy. Mike Fratantoni, senior vice president of research and chief economist of the Mortgage Bankers Association (MBA), said today’s high inflation rate which is unrelated to bottlenecks in the supply chain is not transient. And it could continue to be above the Federal Reserve’s 2% target for the next two years.

“We are really convinced that [housing costs] will continue to rise even after the return of some things like used car prices and other things that are directly related to supply chain constraints, ”Fratantoni said at a press briefing on Monday. “These things are going to be transient once these supply chains are gone. But I think the housing price component will persist for a long time, like years. “

As the economy transitions from the COVID-19 pandemic, interest rates are starting to rise, driven by current economic growth. Homeowners can take advantage of today’s low rates by refinancing their mortgage, which could help them lower their monthly payments. Visit Credible to find your personalized rate and see how much you could save.

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Wage growth will remain strong

Higher levels of inflation – driven by supply shortages, high demand and even labor shortages – are raise prices across the United States But as inflation continues, wage growth holds up as Americans gain bargaining power and businesses are forced to pay more.

“You have the dropout rate on the rise, you have strikes again,” said Fratantoni. “You have people, obviously, with some bargaining power on the wage front. You look at these wage measures, you look at the number of small businesses that are struggling to fill open positions, determine that they’re going to have to increase. wages to try to fill them and feel they can raise prices to pay for those higher labor costs. “

The average salary rose 4.6% per year in September, up 0.6% from the previous month, according to the latest employment report of the Bureau of Labor Statistics (BLS).

“Wages are rising, not as fast as house prices, that these two things have to connect sooner or later, but they are rising,” Michael DeVito, CEO of Freddie Mac, said in an MBA session. annual conference in San Diego. “And overall I think this country is great at solving long term supply issues. It won’t be short term, and it won’t be without a few bumps, but overall, I think in the long run the housing market looks pretty strong. “

As prices rise and economic growth continues, interest rates will also begin to rise. If you want to reduce your mortgage payments as other costs go up, visit Credible to compare several lenders at once and choose the one that suits you best.

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Inflation will exceed the 2% target – what this means for interest rates

As inflation continues to be high, Fratantoni predicted in his outlook that Americans should expect it to continue to exceed the Federal Reserve’s 2% target rate for some time.

“I think all the wage metrics you look at, all the inflation you look at is somehow consistent with the story of a real risk of inflation above the Fed’s 2% target for at least a few years, “he said.

But one way the Fed can tackle inflation if it persists for too long is to raise interest rates and end its bond purchases that create economic stimulus. Now the central bank has said it may start raising rates from next year.

Previously, the Fed predicted it would start raising rates as early as 2023, but it has since moved back that timeline, saying it could hike rates as early as the third quarter of 2022. And mortgage rates will also start to rise. the MBA forecast that the 30-year average mortgage rate will end 2021 at 3.1% and drop to 4% by the end of 2022. By the end of 2023, mortgage interest rates will be just below the 2023 mark. 4.5%, as forecast.

Other factors could affect inflation expectations and cause Federal Reserve Chairman Jerome Powell to change interest rate monetary policy, such as the continuation high unemployment rate, labor market shortages and continued high energy prices.

If you are interested in mortgage refinancing amid today’s low rates and high inflation expectations, contact Credible to speak to a mortgage expert and get all your questions answered.

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