Question

Evaluate the mortgage market today (2020). Do you believe the Federal Reserve will increase interest rates in the next 2-3 months? Why or why not?

Answer 1

At present, economy has been hit badly by the corona pandemic. Financial sector is one of the worst hit. Today, the 30 average is 3.18 percent. It's has Increased compared to the last week. But interest rate still remains at historically low levels

The fall can be explained with the help of the following diagram.SS the demand for mortages and DD is the demand for mortages. R is the Equilibrium Interest rate determined by their intersection at A. With the outbreak of the virus, demand for mortages experienced a huge fall. Demand curve shifted left to D1D1. As a result, Equilibrium Interest rate fell from R to R1.

Federal reserve won't the Increase the tate significantly in the upcoming 2-3 months. Became, economy still hasn't come out of the crisis. Increasing the rate would result in a decline in demand for mortages and slow down the economic activities based on that. However slight improvements will be there, as the economy moves along the path of recovery.