U.S. Fed has just announced the much priced-in 0.75% rate increase following its September FOMC to bring federal funds rate to a range of 3.00-3.25%. What was news is the dot plot projection of another 1.25% hike before the end of this year (two more meetings) to bring fed funds to 4.40%, and possibly one more 0.25% hike in 2023 before Fed pauses at 4.60% the terminal rate.
Compare All Latest Rates 2022
At the beginning of the year, no one would have imagined that the Fed could potentially unleash a total of 400 basis point (4%) rate hike in 2022! We had warned about the fastest tightening cycle by Fed in history back in early May for those who would heed our advice for early action. Fed is now going even faster with the likelihood of another jumbo-sized 0.75% hike in November followed by a final 0.50% in its last meeting for the year. However, remember this Fed is still data-dependant and inflation print over the next few months is key. Nonetheless, it looks highly probable that the funds rate will get really close to 4% if not overshooting it before the end of this year.
What Does That Mean For Interest Rate In Singapore?
The best answer to that question, like what we always do here, is to point back to the interest rate cycle. It forms the basis for all our forecast and recommendations. So, work with us as we continuously adjust our view to help our clients navigate ahead of the cycle turns. That’s has become a crucial differentiator since the start of this year and likely so for the next 12-24 months – it’s who you work with which will help to save the most on mortgage interests.
And our key message now to the market:
SORA will continue its surge in Q4 as it had already in the current quarter. Yet, do not panic! Hold your nerves. Watch interest rate cycles closely and understand what goes up will come down eventually. 3-month compounded SORA might get to or even cross 3% but it’s not how high the terminal rate gets to but how long it stays there. No one likes to be the last person to chase and lock himself onto a fixed rate in excess of 3% and suddenly find the cycle turning with interest rate crashing down quickly within 6-12 months.
Don’t think that’s possible? The truth is even the Fed doesn’t know what will happen next. Fed Chair Jerome Powell himself alluded to “some pain in the labour market” and possibility of a recession. Even though the dot plot suggests that there should be one more rate hike in 2023 but no cuts in rate in store until 2024. The real test is in 2023 – can Fed keep its resolve to achieving price stability when economic pain and political pressure mounts? Already Fed is now forced to revise its GDP forecast sharply down from 1.7% to just 0.2% for 2022 and unemployment rate to rise from the current 3.7% to 4.4% by 2023. This has suggestion of recessionary risks which will become more evident as we look at corporate earnings over the next few quarters.
For those with lock-in expiry within the next 6 months, there’s still one last chance to lock down a fixed rate at 2.60% but not for much longer. Speak to us today! Find out what’s the best mortgage strategy to adopt as we wind down 2022 and prepare for what’s likely a tumultuous year in 2023.
3-month compounded SORA might get to or even cross 3% but it’s not how high the terminal rate gets to but how long it stays there.
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