“The short-term rate hikes that the Fed will embark on to try to tame inflation will certainly put upward pressure on auto loans and mortgage rates,” said Taylor Marr, deputy chief economist at real estate brokerage Redfin.
Another big factor is the end of the Fed’s bond-buying program, which helped support fixed-income markets during the pandemic. A large portion of the purchases were mortgage-backed securities, contributing to lower mortgage rates. Marr expects program’s end, alongside higher rates, to decrease demand for homes and slow price growth.
In the short term, though, increases in borrowing costs could further pinch homebuyers already struggling with the effects of inflation.
“You've got a higher mortgage rate and high costs for food and other things — that's not going to be easy to manage for everyday people,” Miskin said.
Cryptocurrencies
Bitcoin, Ether and many other tokens have become popular with investors looking for potentially high returns, even if that means more risk compared to traditional assets, like stocks or bonds. Government stimulus checks also prompted new investors to begin trading during the pandemic, and a fair amount of that money ended up in crypto markets.
“Rising rates are like a wet blanket on crypto,” said Matt Hougan, chief investment officer at Bitwise Asset Management. If investors can find yield in lower-risk corners of the market, that suddenly makes crypto less attractive. Bitcoin prices have slumped around 40% from their high in November, and Ether has lost nearly 45%.
However, some recent developments in the crypto space may help reduce its risk. Greater regulatory clarity is taking shape, particularly after President Joe Biden signed an executive order earlier this month that industry participants viewed as “benign.” Institutional investors and venture capitalists have also flocked to the space, giving it more liquidity.
The Future
The number of rate hikes this year will depend on factors like inflation, economic growth and geopolitical risks. Estimates from Wall Street economists vary widely, with some predicting as many as seven total in 2022.
Others believe that estimate is overblown. Miskin at John Hancock expects the Fed to “start like a hawk and end like a dove” this year — essentially, the central bank will raise rates in the first half to combat inflation, but not as aggressively as some are predicting.
“We do believe there is downside risk to the global economy given the Russian war and the spike in commodity prices,” he said. “That's going to potentially dent global growth.”