The Federal Reserve has just concluded their November 1st Federal Open Market Committee (FOMC) meeting and the FED funds interest rate remains at 5.25 – 5.50%, as expected.
The Fed has raised interest rates 11 times since last year from 0.25% to what we have right now at 5.5%.
This is the fastest pace in 40 years and what this means for you and me is that right now, it is much more expensive to borrow money.
Read: US Inflation Remains High At 3.7% In September, Slightly Higher Than Expected
Interest Rates
The housing markets are at 8% on the 30-year fixed mortgage; this is the highest rate in 23 years.
Home equity lines of credit are at 9%; this is the highest rate in the past 20 years.
The average credit card rate is now above 20% and is the highest rate in history.
Auto loans are now averaging above 7% this is the highest rate in 16 years.
The whole point of the Federal Reserve raising the FED funds interest rates is to make it more expensive for consumers and businesses to borrow money.
Read: Federal Reserve Officials Agrees They Will Not Cut Rates In 2023 As Inflation Accelerates
Statement Highlights
The huge change that really caught the market’s attention was the change in statement about tighter credit conditions.
The statement by the Fed noted “tighter financial and credit conditions,” which was a key change from the previous statement, “tighter credit conditions” for households and businesses that are likely to weigh on economic activity hiring and inflation.
This change was surprising by the markets because financial conditions were not as tight as implied.
To provide context, “tighter financial conditions” is referring to a broad range of factors that makes it more difficult and expensive to borrow and lend money; while “tighter credit conditions” is referring specifically to the availability and cost of credit (the total amount you will pay less the amount of the original mortgage value). Combine them together, this interprets that the Fed is becoming more concerned about the broader impact of its monetary policy tightening.
Thus, the market reacted with a strong rally in stock and crypto prices, a drop in bond yields, and a weaker US dollar, as it interpreted the Fed’s stance as less likely to raise rates in the future.
Market Sentiment
The market now anticipates that there will be no rate hikes in December next month, with expectations for future rate hikes decreasing, and the possibility of rate cuts are more likely to come.
Fed Chair Jerome Powell clarified that they are “data-dependent,” but the market interpreted his comments as a signal that the Fed is less likely to raise rates again.
Final Thoughts
Right now, we are in a higher interest rate environment and the money printers are switched off. Imagine what is going to happen when the Federal Reserve starts to cut rates and turn the money printers back on and that is inevitable.
Fed Chair Jerome Powell is going to try to hold interest rates at these higher levels for as long as possible. But the question is how long can he hold out because he is already feeling the pressure from so many people like the mortgage associations, institutions, real estate, and from politicians — they want him to cut interest rates because obviously it is in their best interest that he does so.