Sen. Elizabeth Warren, D-Mass., and several other Democratic senators wrote to Federal Reserve Chairman Jerome Powell to lower "astronomical" interest rates this year and help ease housing prices.
Warren was joined in her letter by Sens. John Hickenlooper, D-Colo., Jacky Rosen, D-Nev., and Sheldon Whitehouse, D-R.I. The group of Democratic senators noted that mortgage rates rose to 20-year highs in the past year amid the Federal Reserve’s interest rate hikes and expressed concern about the housing market because "high interest rates have aggravated the country’s persistent crisis of housing access and affordability."
"The Fed’s decision to raise interest rates rapidly, and keep them high, has resulted in higher costs for home purchasers, higher rents, and reductions in new home and apartment building — and the job growth that comes with these investments," they wrote.
MORTGAGE RATES CLIMB, ADDING TO AFFORDABILITY WOES
The senators’ letter didn’t discuss the inflationary pressures in the economy that prompted the Fed’s aggressive rate hikes. Inflation hit a 40-year high of 9.1% in June 2022 in the wake of pandemic-related supply chain shortages and a surge of new federal spending.
The Fed’s rate hikes have slowed inflation to 3.4% as of December — although that remains well above the central bank’s 2% target rate. The benchmark federal funds rate is currently in the range of 5.25% to 5.50%, which is the highest level in two decades.
That benchmark influences mortgage rates, which are in the mid-6% range for 30-year fixed-rate mortgages, down about a percentage point from October but well above pandemic-era rates.
INFLATION CLIMBS FASTER THAN EXPECTED IN DECEMBER AS HIGH PRICES PERSIST
"The direct effect of these astronomical rates has been a significant increase in the overall home purchasing cost to the average consumer," the Democratic senators wrote. "From December 2021 to December 2022, average monthly payments on 30-year fixed-rate mortgages rose from $1,400 to $2,045, a staggering 46% increase. Today, those payments have skyrocketed to $2,883, even with the recent downturn in mortgage rates."
"Given the impacts of the Fed’s monetary policy on our country’s housing ecosystem – and the ripple effects for health outcomes in communities, wealth creation, and access to job and educational opportunities – we urge the Fed to reverse its aggressive hikes to the federal funds rate in 2024," they wrote to Fed Chair Jerome Powell. "The Fed has already signaled its willingness to cut rates, and the market has responded accordingly."
"Working families, already struggling with the cost of housing, need relief now," they added.
WHEN WILL THE FEDERAL RESERVE START TO CUT INTEREST RATES?
The Federal Reserve signaled an openness to potential interest rate cuts at the last meeting of the Federal Open Market Committee, which acts as the Fed’s policymaking arm, by keeping the federal funds rate at the range of 5.25% to 5.50% in December instead of raising it higher.
The central bank’s economic projections also showed that a majority of policymakers believed that interest rates would decline to 4.6% by the end of 2024 — though the timing of the potential cuts is unclear.
That would suggest at least three quarter-point cuts this year and none of the officials indicated that they see interest rates rising in 2024. Additionally, policymakers penciled in additional rate cuts in 2025 and 2026 in their longer-term economic projections.
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The FOMC’s next meeting will occur on Tuesday, Jan. 30, and Wednesday, Jan. 31.
FOX Business’s Megan Henney contributed to this report.
