FOMC September and whatever happened to HB 358?

Was there a Rate Hike?

Yes, the Fed has raised rates again, this time by another ¾ of a percent. In total, the fed has increased this year by 3%. As a result, the current federal fund target rate is 3.00 to 3.25%.

How’s that inflation fight going?

The short version is- not great. August’s core inflation (without food and energy) rose from 5.9% to 6.3%. Total inflation decreased from 8.5% to 8.3%. Gas prices have gone down, but other costs have risen. The Fed’s inflation goal remains 2%, but they don’t think we’ll reach it until 2025. Here are the median projections from the participating members of the Federal Reserve system.

Per the chart above, current forecasts are that the 4th quarter of this year will end with 5.4% inflation and 4.5% core inflation (inflation except for food and energy). The next meeting is in November, so I’ll check back to see how those projections are going. Given the rate of progress toward that goal:

Jan 7.5%

Feb 7.9%

Mar 8.5%

Apr 8.3%

May 8.6%

Jun 9.1%

Jul 8.5%

Aug 8.3%

They’re being pretty optimistic, with 5.4% by the end of December. The two biggest jumps in the last year were .6%. The two times this happened were February into March (7.9% to 8.5%) and May into June (8.6% to 9.1%). If inflation dropped by .6% every month til the end of the year, it would look like this:

August 8.3%

September 7.7%

October 7.1%

November 6.5%

December 5.9%

With that in mind, it seems unlikely that we’ll see a 5.4% rate by the end of the year. I looked at historical inflation changes from 1958 to the present using data from the Bureau of Labor Statistics. The largest inflation jump occurred between June and July of 1981. Inflation jumped from 9.4% to 11.1%, a 1.7% increase. The largest decrease in inflation, -1.2%, occurred twice between 1958 and today. The first time was between June and July 1980, and the second was between August and September 1982. The average change in inflation is .4%, and the median is 0%. While jumps of this size are possible, it seems unlikely. Very, very unlikely, particularly since core inflation just rose.

Current upward inflation pressures include, but may not be limited to, China’s continued lockdowns and massive economic slowdown, the war between Russia and Ukraine, US housing demand, and supply slowdowns and shortages. One of those sources of pressure will have to change before inflation goes down as far as it needs to. Or, possibly, the Fed needs to get downright draconian with their rate increases.

Is this the last rate hike?

Definitely not. From the participating members’ forecasts, the Fed doesn’t believe they’ll be able to lower the federal rate until 2024 and will continue to raise it into 2023.

What does this mean for real estate and home inspections?

It means the home-buying process is going to get more painful. Prices aren’t going down too fast, not as fast as the Fed wants, and borrowing rates are higher. With rent prices also heightened it leaves potential home buyers in a sticky situation. We’ll all have to work our way through it the best we can.

HB 358

In July, I wrote about House Bill 358, which had bipartisan support and would have reduced the cost of buying a house in Delaware. Sadly, this bill did not pass, and Delaware retains the highest realty transfer tax in the country at 4%.

However! There is still a chance. The bill could be re-introduced in the next General Assembly, which starts in January 2023, and then it could potentially pass. I’ll probably post something about what steps are necessary for the bill to be re-introduced in a later blog post.

Thank you for reading!