Stocks Extend Losses Following Fed Decision, Mortgage Rates Spike Again

The Fed authorized another 75 basis point rate hike yesterday, and investors aren't happy about it. Meanwhile, mortgage rates continue to rise.

The stock market has extended a series of losses from earlier in the week following the Federal Reserve’s decision on interest rates. Once again, the US’s central bank has implemented a 0.75% increase in interest rates, further crushing the economy’s demand for loans and extending its battle against inflation. In short, Fed Chair Jerome Powell is in this inflation fight for the long haul.

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These quantitative tightening moves were expected, but the market still reacted negatively to the news that the Fed isn’t done shrinking the demand in the economy. As the Fed’s leaders continue to pressure the stock market to cool off, tensions are heating up. Investors want growth, but the Fed wants stability. Those two goals are seemingly at odds.

Read More: Check out the latest Mind Your Dollars stock and financial news.

Mortgage rates are also soaring once again, staying above 6% and breaking records last set in 2008. For those with long memories, that means mortgages are as expensive now as they were at the height of the housing market bubble that prefaced the 2008 recession. Naturally, experts are alarmed that another such recession could be on the horizon, as the Fed’s aggressive strategy and overall investor sentiment both suggest that things will get tough in the last quarter of the year.

Fed Decision Extends Interest Rate Hikes

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The Federal Reserve’s policy meeting on Tuesday and Wednesday culminated in the announcement that the central bank had once again authorized a 75 basis point interest rate hike. This means it will be even more expensive for businesses and consumers to take out loans, which the Fed hopes will slow the economy down and increase the value of the dollar. 

This is an unprecedented streak for the central bank, as it marks three consecutive 75 basis point increases. This means that the Fed’s target for interest rates is now between 3% and 3.25%, the highest interest rate since 2008. Again, experts have noticed a pattern of alarming economic indicators that line up with the troubling year that started the most recent recession. 

In prepared remarks after the policy meeting, Fed Chair Jerome Powell told reporters that the central bank is “strongly committed” to getting inflation rates back to 2%. “If we want to set ourselves up, really light the way to another period of a very strong labor market, we have got to get inflation behind us,” Powell explained. “I wish there was a painless way to do that. There isn’t. What we need to do is get rates up to the point where we’re putting meaningful downward pressure on inflation. And that’s what we’re doing.”

Stocks Drop After Policy Meeting

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The stock market dropped following Powell’s remarks, with many investors worried that the Fed’s tightening spree won’t be stopping any time soon. Yesterday, the three major indexes saw a sudden sell-off, causing all to drop at least 1%. Today, the losses have continued to pile up. The S&P 500 dropped 0.7% shortly after the start of trading, and the Dow Jones Industrial Average slipped around 0.5%. The tech-heavy Nasdaq Composite saw the steepest drop, losing 1% as of this writing.

“With the new rate projections, the Fed is engineering a hard landing – a soft landing is almost out of the question,” Seema Shah, the Chief Global Strategist for Principal Global Investors, said. “Powell’s admission that there will be below-trend growth for a period should be translated as central bank speak for ‘recession.’”

A “soft landing,” or a scenario in which the economy is mostly untouched by the quantitative tightening policies, was a goal of Powell’s until the most recent round of interest rate hikes failed to make a dent in inflation. Now the Fed is going to severely pressure the economy to get the results it was looking for. 

Mortgage Rates Continue to Rise

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Mortgage rates are on the rise once more. Home buyers and sellers alike are frustrated that the once-roaring housing market is now slowing dramatically. Prospective buyers are wary of signing off on loans with interest rates exceeding 6%, so many are deferring plans to buy properties.

“For buyers watching their take-home pay shrink due to higher prices, and shopping budgets diminish due to rising rates, today’s housing market remains highly unaffordable,” explains Realtor.com’s economic research manager George Ratiu. “In many locations, price cuts may be the only viable option to restore housing balance and affordability.”

And those price cuts could further damage the already-shaky economy. With affordable housing becoming a hot topic and midterm elections looming, the US economy is now in a tricky spot. The Fed wants to safeguard price stability, but this could come at the expense of slowing the labor market and even crushing wage growth for working-class Americans. No matter what happens now, working-class people are going to feel the pains of correcting the economy.

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