Inflation to remain high through 2024, recession on its way: MBA forecast

Despite the Federal Reserve's efforts to bring down inflation, it may not dip until mid-2024, according to the latest forecast from the Mortgage Bankers Association (MBA). 

"We won’t be at the Fed’s inflation target until 2024," Mike Fratantoni, the MBA's chief economist and senior vice president, said at the Market Outlook session on Sunday at the MBA Annual conference in Nashville. 

The Consumer Price Index (CPI), a measure of inflation, rose 8.2% annually in September, slightly less than the 8.3% increase in August but persistently close to the 40-year high of 9.1% in June, according to the Bureau of Labor Statistics (BLS).

And minutes from the latest Federal Reserve meeting revealed that as inflation remains high, the central bank will continue to raise interest rates in order to slow the economy down. 

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FED ANNOUNCES THIRD CONSECUTIVE 75-BASIS POINT RATE HIKE

Recession likely in 2023, MBA says

The MBA also forecasted that a recession is likely at the beginning of next year, but Fratantoni said it is expected to be relatively mild and shallow. 

"We are really highly confident we are going to be in a recession next year," Fratantoni said at the conference. 

Back-to-back negative GDP readings in the first half of 2022 created some debate about whether or not the U.S. is in a recession. Typically, economists consider a recession to be after two consecutive quarters of negative GDP growth. But the White House has said that may not be the case in this instance.

"Next year will be particularly challenging for the U.S. and global economies," Fratantoni said. "The sharp increase in interest rates this year – a consequence of the Federal Reserve’s efforts to slow inflation, will lead to an equally sharp slowdown in the economy, matching the downturn that is happening right now in the housing market.

"MBA’s forecast calls for a recession in the first half of next year, driven by tighter financial conditions, reduced business investment, and slower global growth," he continued. 

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FED SAYS INFLATION CONCERNS REMAIN, WILL CONTINUE RAISING RATES

Mortgage rates expected to go down

Although the Fed has continued to raise rates, Fratantoni said he expected mortgage rates to ease in 2023. As the economy enters into the forecasted recession at the beginning of next year, he said it could be enough to cause the Federal Reserve to level out its rate hikes and bring down long-term interest rates. 

Mortgage rates could slip to 5.5% by the end of next year, and slip even lower after that, according to the MBA’s forecast. However, mortgage rates could remain volatile in the near future as the Fed’s monetary policy tightening continues. 

If you are looking to take out a mortgage or refinance your loan, comparing multiple lenders can help you get the best interest rate for you. You can check out the Credible marketplace to help you see several options at once, all without impacting your credit score.

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