US mortgage interest rates hit 6.25 % mark, highest since 2008

The highly interest-rate-sensitive housing sector in the US has been hugely impacted by the rising mortgage rates as the Federal Reserve made an aggressive move to bring down the high inflation by lifting borrowing costs.

The central bank is set to unleash three-quarters of a percentage point hike in the rates of interest for a third time later on Wednesday.

What did Jerome H. Powell, Federal Reserve System, chairperson say about his battle to tame inflation?

• Fed delivers another massive raise in the rates
• Target interest rate lifted to 3.00%-3.25% range
• Forecasts predict another massive hike likely by year-end
• Powell says no ''painless'' remedy to bring down inflation

Jerome Powell, Federal Reserve Chair, vowed on Wednesday that he and his team of policymakers would continue their battle to tame inflation as the US central bank raised interest rates third time straight. The hike is three-quarters of a percentage point. Powell signaled that borrowing costs would continue to rise this year.

Powell cited rising unemployment and singled out the housing market, persistently fuelling consumer inflation and much in need of a correction.

The National Association of Realtors reported on Wednesday that U.S. existing home sales have been dropping for seven months.

Powell said that the U.S. has experienced a significant imbalance in the housing market, which was once ''red hot.'' He called for better realignment between supply and demand, for which the housing market would have to go through a correction to get back.



There has been little to no improvement in the recent inflation data despite the Fed'sFed's aggressive efforts, including the announcement of a 75-basis-point hike in rate in June and July and the labor market remaining strong with an increase in wages as well.
The projected federal funds rate for the year-end signals more hike in rates in Fed's two upcoming policy meetings in 2022, indicating another 75-basis-point surge in the offing.

Slowdown in Growth

Powell said the rising policy rates indicate the Fed's firm resolve to bring down inflation from the highest ever in the last forty years, even if it translated into the rise of unemployment and stalled growth. He wished there were better ways to deal with this problem, but there was no painless remedy.

The new projections aim to put inflation on a slow path back to 2% by 2025. The Fed reported that the recent indicators signaled modest growth in spending and production, but the new projections will register a rise in economic growth from 0.2% in 2022 to 1.2% in 2023, which is much lower than the economy's potential. The unemployment rate is expected to rise from 3.7% to 3.8% in 2022 and reach 4.4% in 2023. This would be above the rise in unemployment associated with previous recessions.

FAQs

Q. Who is Jerome H. Powell?
A. Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022.

Q. What are the four things that will be more expensive due to interest rate hike?
A. Credit cards,Auto financing,Mortgages,Other variable-rate loans