This past week Fed Chairman Jerome Powell testified in a House Financial Services hearing to discuss current economic policy and set forth a new path for 2023—higher interest rates for a longer period of time.

"The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated," said Powell. "If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."

Initially, investors were prepared for a 25-basis point hike at the Federal Open Market Committee's meeting March 15-16. Now, they're pricing in a 50-basis point hike. Powell's comments also changed the consensus for just how high the FOMC plans to take the federal funds rate. The belief now is that the Fed will increase rates at least two more times and potentially stop in the 5.25% range. Just a year ago, March 2022, the federal funds rate stood at 0%. 

Another strong jobs report will likely fuel the Fed's hawkish fire in the coming months. The Bureau of Labor Statistics showed total nonfarm payroll employment rose by 311,000 in February with the unemployment rate edging up slightly from 3.4% to 3.6%. Economists had predicted payroll growth of 225,000, putting the report well above expectations. Wages also increased by 0.2% month-over-month putting average hourly earnings at $33.09. Over the past 12 months, average hourly earnings have increased by 4.6%. 

A market selloff began after Powell's comments with the Dow closing 570 points lower and the 2-year Treasury note yield reached its highest level since 2007, topping 5%. The 10-year note yield briefly hit 4% before settling back in around 3.9%. The 10- and 2-year notes have been inverted since June 2022 and the spread between the two yields has remained wide.

As the 10-year yield continues its climb, mortgage rates are following suit. Freddie Mac's 30-year fixed rate mortgage average moved up to 6.73% for the week ending March 9. That is a nearly 70-basis point increase from the beginning of February which marked the low to start the year. 

Freddie Mac's analysts lament the inflation issue, writing "Mortgage rates continue their upward trajectory as the Federal Reserve signals a more aggressive stance on monetary policy. Overall, consumers are spending in sectors that are not interest rate sensitive, such as travel and dining out. However, rate-sensitive sectors, such as housing, continue to be adversely affected. As a result, would-be homebuyers continue to face the compounding challenges of affordability and low inventory."