Mortgage rate forecast for 2023

How inflation could cause interest rates to dip

Soaring consumer prices have been the primary force driving mortgage rates in the past year. The COVID-19 pandemic spurred the Fed and the federal government to stimulate the economy. The Fed slashed interest rates and bought bonds, while Congress pumped out trillions in economic stimulus.

Those policies kept the U.S. economy out of a prolonged recession, but they also caused prices to soar. The U.S. inflation rate peaked at 9.1 percent in June 2022, according to the U.S. Labor Department.

With inflation out of control, the Fed had no choice but to aggressively raise rates. The central bank boosted interest rates by a quarter-point in March 2022, then by a half-point in May. The Fed raised rates even more in June by Three-quarters of a percentage point which was at the time, the largest Fed rate hike since 1994 and went on to do the same in July, September and November. The Fed ended the year with a half-point bump in December.

The Fed’s strong stand did cool prices. Inflation slowed to 7.7 percent in October, then to 7.1 percent in November. That welcome trend seems to indicate that the Fed can back off, and that mortgage rates might dip, too.

“I think we could be surprised at how much mortgage rates pull back this year, but we’re not going back to 3 percent anytime soon, because inflation is not going back to 2 percent anytime soon. Please call me so I can let you know what is happening in the current market.

Michael Belmudes - Branch Leader
Cell: 808-800-6454
NMLS#1623351
Movement Mortgage
NMLS#39179