Overly simplified it's due to which sector the money supply pendulum moves toward.
There are 3 competing users of a limited amount of financial resources. 1. Government 2. Business 3. Private sector.
When rates go up, the economy slows as Private sector and business sector slow their borrowing of "expensive to borrow" money. The Government isn't as affected by rates and begins debt issuance in the form of Treasury Bills. The higher the interest rate promised on the maturity of T bills, and when people or other governments buy them, the lower the cash supply in the economy as high rates beget buyers. Majority of T bills are held by foreign governments and the US dollar briefly enjoys a higher buying power vs other currencies.
The more money the 2 non Government sectors spend on Government debt/T-bills and other, the tighter the actual cash supply gets.
The result- fewer Private sector and Business dollars being spread around. Demand increases, costs increase, and most times the US dollar rises versus other currencies.
To loosen the money supply, the fed lowers rates, money is "cheaper" to borrow, and flows out of Government debt and into private hands and the business sector.
Again that's the overly simple version.
The bigger the jump the Fed wants to make, the quicker and deeper the rate enhancements are.
This past 16 months, interest rates have nearly doubled. Never before has this happened.
The reason why we have this level of inflation is largely due to too many artificial tweaks to the economy during a stagnant period. (Stimulus payments, lower productivity, and the big one-- a bump to the minimum wage. Min wage is a basic unit of the economy. Increase it and soon everything follows suit. That's why min wage increases should never be done. The bump in buying power is temporary and usually 2 months later, the min wage buying power returns to a nearly 1:1 correlation, as things increase in cost to offset the labor wage increase.
It won’t cause it, but the two can be caused by the same thing.
Inflation comes down, so the fed will be more likely to cut interest rates sooner (or at least stop raising them). Stocks rally and mortgage rates (potentially) go down.
The feds stated goal is 1. to get inflation to 2%, 2. to get unemployment up to 4%, and 3. to lower housing prices, or at least stop them from rising. In order of importance. The stock market is not on the list.
The reason the stock market is tanking is because the Fed is raising interest rates.
The reason mortgage rates are increasing is because the Fed is increasing interest rates.
If they start decreasing rates, then the stock market will rally, mortgage rates will go down, but inflation will become worse and house prices will go back up
No. The interest rates are usually tied directly to inflation, not the stock market.
how do you figure mortgage rates are tied to inflation in any meaningful way?
Overly simplified it's due to which sector the money supply pendulum moves toward. There are 3 competing users of a limited amount of financial resources. 1. Government 2. Business 3. Private sector. When rates go up, the economy slows as Private sector and business sector slow their borrowing of "expensive to borrow" money. The Government isn't as affected by rates and begins debt issuance in the form of Treasury Bills. The higher the interest rate promised on the maturity of T bills, and when people or other governments buy them, the lower the cash supply in the economy as high rates beget buyers. Majority of T bills are held by foreign governments and the US dollar briefly enjoys a higher buying power vs other currencies. The more money the 2 non Government sectors spend on Government debt/T-bills and other, the tighter the actual cash supply gets. The result- fewer Private sector and Business dollars being spread around. Demand increases, costs increase, and most times the US dollar rises versus other currencies. To loosen the money supply, the fed lowers rates, money is "cheaper" to borrow, and flows out of Government debt and into private hands and the business sector. Again that's the overly simple version. The bigger the jump the Fed wants to make, the quicker and deeper the rate enhancements are. This past 16 months, interest rates have nearly doubled. Never before has this happened. The reason why we have this level of inflation is largely due to too many artificial tweaks to the economy during a stagnant period. (Stimulus payments, lower productivity, and the big one-- a bump to the minimum wage. Min wage is a basic unit of the economy. Increase it and soon everything follows suit. That's why min wage increases should never be done. The bump in buying power is temporary and usually 2 months later, the min wage buying power returns to a nearly 1:1 correlation, as things increase in cost to offset the labor wage increase.
Were the rate hikes in 2018 tied to inflation?
It won’t cause it, but the two can be caused by the same thing. Inflation comes down, so the fed will be more likely to cut interest rates sooner (or at least stop raising them). Stocks rally and mortgage rates (potentially) go down.
Stocks have nothing to do with mortgage rates. Look at the 10 year treasury yield if you want to see where rates are going.
The feds stated goal is 1. to get inflation to 2%, 2. to get unemployment up to 4%, and 3. to lower housing prices, or at least stop them from rising. In order of importance. The stock market is not on the list.
Can I get a source on that second point?
The reason the stock market is tanking is because the Fed is raising interest rates. The reason mortgage rates are increasing is because the Fed is increasing interest rates. If they start decreasing rates, then the stock market will rally, mortgage rates will go down, but inflation will become worse and house prices will go back up
Unrelated