That grim news on inflation coincided with consumer confidence plummeting in early June to its lowest level on record, according to the University of Michigan, and appears to have prompted the Fed to up the ante on its plan for interest rates.
Last month, Fed Chairman Jerome Powell said a 0.75% increase was “not something the committee is actively considering” – but markets began to price in an aggressive hike because of the gloomier overall outlook on inflation and consumer sentiment.
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US mortgage rates have already surged during the past week ahead of the Fed decision with the average rate on a 30-year fixed mortgage climbing to 6.28%, up from 5.55% seven days prior.
That rate, which stood at 3.11% at the end of 2021, has been on an upward trajectory throughout the year to date following the record lows of the COVID-19 pandemic. It’s risen sharply as the Fed ends its support for mortgage-backed bonds, leading to a cooldown in the housing market with demand tailing off.