The chairman of Federal Reserve - Jerome H. Powell said at the Cato Institute’s 40th Annual Monetary Conference on 8 Sept 2022 (Thursday) “It is very much our view, and my view, that we need to act now, forthrightly, strongly, as we have been doing,” Just a day before, the Vice Chairman of Federal Reserve Lael Brainard said “we are in this for as long as it takes to get inflation down.”
Real estate professional Kiwi Lim felt this shows the great resolve by the Federal Reserve to bring inflation totally under control on a manageable level for Americans. It is a direct message that the central bank will not stop hiking rates until inflation is under control, no matter what the other consequences are. "The labour market has remained strong with low unemployment rate in America, retail and services industries are still seeing positive sales. In my opinion, this September could see the final massive hike of around 75 basis points followed by smaller 25 basis point hikes in the near future." said Kiwi Lim.
1. Fixed Deposit Rates
Fixed deposit rates in Singapore are currently being offered to the public by various banks ranging between 1.8% to 2.88%. News reported long queues outside many bank branches where people waited more than four hours to open and deposit their money into the fixed deposit accounts.
"We may see fixed deposit rates adjusted closer to 3% from Oct onwards if there is a 75 basis point increase by the Federal Reserve this Sept" said Kiwi Lim
2. Home Loan Rates
Home loan fixed rates which is now hovering around 2.55% may also rise to around 3% or higher. This is still below the stress test threshold of 3.5% rate used in Total Debt Servicing Ratio (TDSR) calculations and homeowners are expected to be able to comfortably continue servicing their home loans. Rental may be adjusted as some landlords face slightly higher mortgage loans.
The government may be tempted to tweak Total Debt Servicing Ratio (TDSR) if interest rates continue rising in order to maintain relevancy for the stress test relating to housing mortgage loans. This may also be interpreted as a cooling measure because potential property buyers may find their approved loans for buying properties shrinking slightly. Thus potential property buyers will have to fork out more cash or CPF if applicable to acquire their desired properties.
Kiwi Lim felt the inflationary figures may still rise sporadically during certain months in the near future even after the Fed's expected massive hike in September as there are certain things the Federal Reserve can’t do anything about - for example: supply chain problems or Russia’s invasion of Ukraine or other global factors keeping fossil fuel energy prices high which will affect almost every industry's services and product's costs.