Writer: Eleana Teran
2 min read November 2022 — Earlier this month, the Federal Reserve took further action to combat inflation, announcing its fourth consecutive three-quarter-percentage-point hike in interest rates while also indicating that the pace of rate increases could slow down soon.
The annual inflation rate slowed to 7.7% in October, the lowest it has been since January and below expectations for 8%. Still, according to Trading Economics, the data continues to point to strong inflationary pressures and broad price increases across the economy, mainly in the services sector.
Mortgage rates fell as a result of October’s lower-than-expected inflation report. Despite the good news, mortgage rates continue to be more than double what they were at the beginning of the year and the housing market has been negatively affected by the central bank’s rapid increase in its benchmark overnight lending rate. Rates have risen significantly over the last six months. With a 2.36 percentage point rise, the 2022 rate hike cycle is nearly twice as fast as the 1988-89 rate hike cycle.
The federal funds rate, which is determined by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, it still affects the borrowing and saving rates they see every day. For the average American, the Fed’s policy means it is more expensive to take out a loan. As a result, people borrow and spend less, effectively slowing the pace of price increases and slowing the economy.
To obtain guidance, many turn to their local banks and lenders, credit unions, or financial advisers. Invest: spoke to leaders across Greater Pittsburgh to understand their perspective on inflation and interest rates, and what they see on the horizon.
Robert Fragasso, Chairman & CEO, Fragasso Financial Advisors
“History just keeps repeating itself. The fact that individual investors have been able to garner increasingly sophisticated tools doesn’t mean they can avoid a market crash. What was true 50 years ago, where everybody is brilliant in the bull market because they feel they make no mistakes, to where they are soundly chastised when the market reverses – that’s still true. Every time that happens, people reassess how they’re handling their investments, and it may be that they were doing it themselves and feeling pretty bright.
It’s true today. So, when people experience a down market, they recognize that may not be their strong suit. And then they look for professional guidance. In all cases, the downturn is a realization incident for investors. And that will continue going forward.”
Christopher McComish, President & CEO, ST Bank
“The rising interest rate environment will be an interesting time in the banking business. We are trying to carry out scenario planning based on what we believe will happen in the economy going forward. The Midwest and the eastern part of Pennsylvania historically hasn’t seen high highs or low lows. We see realistic meaningful growth both for our company and in the market as a whole.”
Thomas Bailey, President & CEO, Brentwood Bank 
“I think everyone is still talking about the supply chain. One potential customer shared that although all their products are made in America, they are still having problems securing those supplies. I think that while we hear that the supply chain is improving, there are still hardships, especially among smaller businesses. Additionally, many small businesses commit too soon. When the price changes due to inflation, they are caught off-guard.”
With interest rates rising, many people in the community are questioning if their money is invested properly. We are responding by connecting with customers to discuss their financial well-being.
John Gill, President & CEO, cfsbank
“The biggest challenge for everybody is the economy. Rates haven’t increased this fast since the 1980s. Everybody is trying to see how this will impact the economy. Loan rates that were 3% are now 6%. People are trying to figure out what to do in the current environment: Should they buy a house now with the hopes of refinancing it later on or should they wait?
The concerns of customers in the Pittsburgh market are to see how much this is impacting the economy. I think we’ve been lucky in this region because we haven’t experienced the high prices that other markets have. We are seeing an escalation in housing prices but it is not nearly as much as in other places. We still have a very stable market and we continue to do home equity loans at attractive rates but there is uncertainty. With the recession, people are a little nervous about potential layoffs going forward. We spend a lot of time planning how this will change things for us. We have seen a slowdown in our residential loans but our commercial side is continuing to grow, so there are still a lot of opportunities for us.”
For more information, visit:
https://www.fragassoadvisors.com/
