Editor’s Note: Industry Cheers A Stall On Rate Hikes

At the last meeting the Fed stopped raising interest rates and the mortgage industry has cheered that decision.

“This skip is a likely indicator that the Fed wants to give the previous hikes time to have an observable impact, specifically on inflation,” said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. “It remains to be seen what happens in months to follow, but for June at least, borrowers could see somewhat of a stabilization of rates across a range of industries, in particular, mortgage and credit card.

“In the mortgage market, consumers may be buoyed by the news that interest rates are holding steady, at least for now, at a time where a $300,000, 30-year 6.8% fixed rate mortgage now sees monthly payments in the range of $1,956. This is up from $1,297 at the 3.2% rates seen in January 2022. However, it remains to be seen if, in the short term, this will spur many who have been holding off to finally engage in a new purchase or refinance, or if they will continue waiting until rates begin dropping.”

“Coming into this meeting, it was clear that the Fed would hold steady on an additional rate hike, but would open the door for more in the future. Unfortunately, while inflation has been moderating, it remains well above the Fed’s comfort level,” CoreLogic Chief Economist Selma Hepp said. “Also, the likelihood of another hike or two has also increased given lack of credit crunch the Fed was expecting from the banking sector. As a result, mortgage rates, while still on a gradual decline, are likely to remain higher through the remainder of year.”

Chair Jerome Powell offered a nuanced view of how the Fed intends to address its core challenge at a time when inflation is both way below its peak but still well above the central bank’s 2% target: Give it more time, and maybe some help from additional interest rate hikes.

Yet on a hopeful note, Powell also suggested that the trends that are needed to further slow inflation, from lower apartment rents to slower-growing wages, are starting to click into place.

On the credit card front, while the skip means interest rates may not rise again this month, the high credit card interest rates consumers are currently seeing are going nowhere anytime soon, according to Raneri. “In fact, interest rate increases since March 2022 translate to a 5.0% increase in the Prime Rate. Based on the current average total card balance per consumer of $5,800, this translates to an additional $290 of annual card interest rate charges per consumer.

“With the summer travel season getting underway this month, consumers should continue to use credit diligently when they can, and with the continued understanding that even if interest rates do not rise this month, they may very well increase again in the future, and as interest rates rise, so do minimum credit card payments. Consumers should ensure they are able to make those payments that come through their use of credit in order to avoid delinquency,” Raneri concluded.