The Federal Reserve is standing pat in its hawkish effort to fight inflation. The Federal Open Market Committee (FOMC) raised the federal funds rate by 75 basis points at its September meeting and also set its terminal rate of 4.6% in 2023. The terminal rate would be the end point for rate hikes. That also indicates that the Fed does not plan to decrease interest rates next year. The dot plot, which shows how each FOMC member views upcoming rate increases, shows that none of them expect a decrease in the overnight lending rate until 2024. 

Fed chair Jerome Powell continued to reiterate his stance saying, "My main message has not changed since Jackson Hole. The FOMC is strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done."

The 10-year Treasury note yield jumped to a session high of 3.60% the day of the Fed's announcement and moved above 3.7% at the start of trading September 23. The yield on the 10-year note has increased by 100 basis points since August 1 and has increased by more than 200 basis points since March 1. 

Mortgage rates have followed suit and continue to drive down demand in the housing industry. Freddie Mac's latest weekly survey showed the average for a 30-year fixed-rate mortgage moved up to 6.29%. Freddie Mac's release states, "The housing market continues to face headwinds as mortgage rates increase again this week, following the 10-year Treasury yield's jump to its highest level since 2011. Impacted by higher rates, house prices are softening, and home sales have decreased. However, the number of homes for sale remains well below normal levels."

The Mortgage Bankers Association's (MBA) Builder Application Survey (BAS) for August showed a year-over-year 10% decline in mortgage applications for new homes but a 17% month-over-month increase from July to August. The MBA's Associate Vice President of Economic and Industry Forecasting, Joel Kan, said in the report, "New home purchase applications were down year-over-year but rebounded in August after four consecutive months of declines, despite higher mortgage rates, declining homebuilder sentiment, and looming economic uncertainty. The average loan size decreased for the fourth straight month, which is a sign of slowing home-price growth in the new homes market. Ongoing volatility in mortgage rates in the months ahead may lead to larger swings than is typical in the pace of new home sales. Between moderating sales prices and volatile mortgage rates, buyers seem to be biding their time."

Inventory continues to be put in a stranglehold as single-family construction struggles against the headwinds of expensive labor, land and materials. The Commerce Department's latest report shows a sharp rebound in housing starts, but that's mainly due to the highest level of multi-family building starts since 1986. The construction pace of single-family homes rose 3.4% in August and apartments rose 28.6%. The demand for rental homes comes as interest rates continue to rise and make home purchases more expensive.

Despite the surge in multi-family building, builder confidence is at its lowest level since 2014. The National Association of Home Builders/Wells Fargo Housing Market Index showed the confidence level came in at 46 for September—a ninth straight month of declining confidence. Anything below 50 is considered negative.