Are We Finally Done With Interest Rate Hikes?

November 10, 2023


The Experts Think So.

In the most recent meeting of the Federal Reserve, Chairman Powell gave guidance that sounded almost identical to that which he gave after the last couple of meetings: They are holding rates the steady, but they reserve the right to increase the rates in upcoming meetings.

Now, there's an old saying that goes something like this — If you put the word “but” in a sentence, everything you said before that is invalidated. Like, “He's a great guy, but he drinks too much”. Or, “I'd like to go out on a date with you, but I have to wash my hair”. The real message comes after the “but”.

Interestingly in this situation, the financial market has essentially ignored the “but” in Chairman Powell's guidance. If you watched the stock market's response after the Fed Meeting, you know that the stock market had a great week last week, and that is continuing into the early part of this week. Even I managed to to see my portfolio increase by $50 or so, which is definitely newsworthy.

Normally, the stock market will drop when investors and experts feel that interest rates will rise. Last week's behavior is very telltale of what the financial experts now believe – the rate hikes are over, regardless of what cautionary guidance the Fed is giving just after the word “but”. Even my own financial advisor, who is chartered with watching over my precious investments, believes this is the case.

Indeed, I read no fewer than 6 articles this week from financial experts that basically echo the same mantra: The rate hikes have finally had the desired effect of slowing down the economy, and further hikes are not necessary and even run the risk of plunging the economy into an unnecessary recession. They point to jobs data, the performance of the 10-year bond, and the slew of underwhelming earnings reports from top companies as evidence that “enough is enough”.

Good News for Real Estate.

If this indeed turns out to be the case, it will be welcome news to a real estate market that has been battered all year by the three “I's”– Interest, Insurance, and Inventory. The interest rate hikes have forced countless home buyers to the sidelines, and have also kept home sellers from selling. I read an article today where a respected market expert categorized a 3% mortgage on a home as an “asset” and not a “liability”, which is an interesting spin on what is still categorized as debt. But the point is not lost — when the majority of California homeowners have locked in long-term interest rates of 5% or less, they simply aren't going to sell unless they absolutely have to move, or the sale of their existing home puts them in an all-cash position to purchase their next home.

So let's mark this date down as a prediction by the “experts” that the Fed has finished hiking rates. If we are right, we are genius. If we're wrong, there's always a future in meteorology, where you can make a good living being wrong 50% of the time.

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