We’ve talked about how inflation and mortgage rates have a proportional relationship. They typically move in the same direction. 2020 created so many exceptions to typical rules and normal ways of doing things. With the economy largely shut down in 2020, the Fed bought mortgage backed securities to manipulate the market rates by keeping them low.
In doing so, inflation began to rise from the 1% range it had been in. The Fed was telling us this was transitory inflation (a temporary situation), but it was not. In 2021, the consumer price index (CPI) skyrocketed, but mortgage rates remained around 3% as the government continued to invest in mortgages, which artificially kept rates low. Had they taken some action with rate hikes then, it is likely they wouldn’t have had to be so aggressive with rate hikes now. Because they waited way too long, it was a runaway train that they are having to aggressively try to get a handle on.
Hear it from the expert:
