MBA expects two more Federal Reserve hikes, in December and Q1 2027
Mike Fratantoni, chief economist and senior vice president of research and business development at the MBA, laid out the forecast Sunday at the association’s annual convention in Chicago, alongside Joel Kan, vice president and deputy chief economist, and Marina Walsh, vice president and head of industry analysis.
“We think the Fed is going to be in a position where they have to hike a couple more times,” Fratantoni said. “They’ve signaled pretty clearly now they’re going to take October off right before the election, and so a hike in December, a hike sometime in the first quarter, that’ll bring the Fed’s target Fed funds rate above the level of inflation, which is really what you need to put sufficient pressure on it to move down in, to use the Fed’s words, a timely fashion. But we think they’ll hold at that level really through much of the forecast window.”
Why rates stay high
Inflation is the main reason. The personal consumption expenditures price index and the consumer price index are both running at about 3.4%, and Fratantoni said it will likely take until around 2028, maybe later, to get back to the Fed’s 2% target.
This year’s driver is an oil price shock, with Brent crude near $100 a barrel. Markets expect a drop, Fratantoni said, but he called that a low-confidence prediction.
The 10-year Treasury touched about 5.36%, its highest level in 24 years, before closing near 5.25% on Friday. The MBA expects it to average 5.1% in the fourth quarter and hold near 5% through 2027, with the 30-year mortgage rate averaging about 7.25% this quarter and staying around 7% or higher next year.
