At Inman Connect Las Vegas, from July 30-Aug. 1, 2024, you can expect to find clarity amidst the noise and misinformation, have all your pressing questions answered, and discover new business opportunities. Join us by visiting the Inman Connect Las Vegas 2024 website.
What if, instead of implementing three rate cuts this year to support a slowing economy for a “soft landing,” Federal Reserve policymakers decide to raise rates due to persistent inflation exceeding their expectations? While this scenario isn’t the base case, UBS Group AG analysts caution that it could lead to mortgage rates surpassing 8 percent next year and causing volatility in the stock market.
UBS, previously anticipating significant rate cuts, has revised its projections to only two smaller cuts, totaling half a percentage point. According to Bloomberg News, UBS strategists foresee the risk of the Fed resuming rate hikes if economic expansion remains robust and inflation stays at 2.5 percent or higher.
While the probability of a Fed rate hike may impact lenders and stock market investors, the market sentiment currently leans towards no rate increases. Futures markets indicate minimal chance of the Fed raising rates, with investors mostly pricing in rate cuts instead.
As inflation data remains high, investors are adjusting their expectations, leading to a potential decrease in the odds of Fed rate cuts by June. Consequently, mortgage rates have begun to rise, showing signs of reverting to levels seen before the previous decrease in rates.
Despite concerns about rising borrowing costs, there is a positive development in the narrowing of the “30-10 spread” between mortgage rates and 10-year Treasury notes. This decrease in spread signals potential relief for homeowners, as higher returns on mortgage-backed securities compared to Treasurys may stabilize as the gap shrinks.
Following discussions with the Fed to address MBS portfolio wind-down, efforts to mitigate the spread have been made. Although the Fed is gradually reducing its MBS holdings, mortgage rates remain comparatively high. Expectations for substantial rate cuts fading has contributed to the shrinking 30-10 spread in April.
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At Inman Connect Las Vegas, set to take place from July 30-August 1, 2024, attendees can expect a focus on providing accurate information, answering pressing questions, and uncovering new business opportunities. Federal Reserve policymakers are facing a dilemma as they consider the possibility of raising rates due to higher inflation levels rather than cutting them to support a slowing economy. UBS Group AG analysts predict that if inflation remains high, mortgage rates could skyrocket above 8 percent next year, potentially causing turmoil in stock markets. Despite predictions of rate hikes, futures markets still lean towards the likelihood of rate cuts rather than increases. Mortgage rates have already started to rise, regaining lost ground from last year. However, one positive development is the narrowing of the spread between mortgage rates and 10-year Treasury notes. The potential for a rate hike has caused investors to reconsider their expectations, leading to fluctuations in market sentiment. As inflation data continues to exceed expectations, the likelihood of rate cuts diminishes, leading to increased uncertainty in the market. The Federal Reserve’s approach to balancing inflation and interest rates will be closely watched for its potential impact on various sectors, including the real estate and lending industries.
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