Signs are mounting that the resilience of American consumers is rapidly waning, potentially undermining one of the few remaining pillars supporting the bull market in equities t.co/9djBA004gg
— Bloomberg Opinion (@bopinion) March 28, 2022
Shock Hits the Housing Market
When the pandemic struck two years ago, the Federal Reserve used nearly every lever at its disposal to combat the COVID-19 recession. That included cutting its benchmark interest rate to zero. Lower interest rates incentivized businesses to invest and borrow cheap money. It also encouraged buyers—enticed by record low mortgage rates—to jump into the housing market.
That’s all behind us now. The Federal Reserve has moved its focus from helping the economy recover to getting inflation under control. Last week, the central bank raised rates for the first time since 2018. In anticipation of the hike, the average 30-year fixed mortgage rate spiked from 3.11% in December to 4.16% as of last week, according to Freddie Mac. That upward swing isn’t over yet: Bankrate reports that as of Wednesday, the average 30-year fixed mortgage rate is 4.52%. (We won’t get the official number from Freddie Mac until Friday).
El-Erian warns of ‘cost of living crisis,’ says Fed rate hikes could cause recession
- Economist Mohamed El-Erian warned that the Fed’s efforts to combat inflation could tip the economy into recession.
- Investors are watching the relationship between bond yields for clues on how close the U.S. is to contraction. So far, recession risks appear low.
- However, El-Erian said consumers are facing “a cost of living crisis.”