by Calculated Risk on 1/02/2022 11:57:00 AM
Earlier I posted some questions on my blog: Ten Economic Questions for 2022. Some of these questions concern real estate (inventory, house prices, housing credit, housing starts, new home sales), and I posted those in the newsletter (others like GDP and employment will be on my blog).
I’m adding some thoughts, and maybe some predictions for each question.
6) Monetary Policy: In response to the pandemic, the FOMC cut rates to zero, and initiated an asset purchase program in March 2020. The FOMC is currently on pace to stop the asset purchase program in March 2022. A majority of FOMC participants expect three rate hikes in 2022. Will the Fed raise rates in 2022? If so, how many times?
First, on asset purchases from the December 2021 FOMC statement:
“In light of inflation developments and the further improvement in the labor market, the Committee decided to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities. Beginning in January, the Committee will increase its holdings of Treasury securities by at least $40 billion per month and of agency mortgage-backed securities by at least $20 billion per month. The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.”
The current plan is to end asset purchases in March 2022.
“High inflation is likely to keep the Fed on a quarterly tightening path next year. We expect the FOMC to raise rates three times starting in March and to announce the start of balance sheet runoff, which is likely to proceed more quickly than last cycle. Our forecast calls for three additional hikes per year in 2023 and 2024 and a terminal rate of 2.5-2.75%.”
|One Rate Hike||1|
|Two Rate Hikes||5|
|Three Rate Hikes||10|
|Four Rate Hikes||2|
Clearly the main view of the FOMC is three rate hikes in 2022.
o Question #6 for 2022: Will the Fed raise rates in 2022? If so, how many times?
o Question #7 for 2022: How about housing starts and new home sales in 2022?
o Question #8 for 2022: Housing Credit: Will we see easier mortgage lending in 2022?
o Question #9 for 2022: What will happen with house prices in 2022?
o Question #10 for 2022: Will inventory increase as the pandemic subsides, or will inventory decrease further in 2022?