Inflation cooling down to the Federal Reserve’s target of two percent will spark a decline of borrowing costs, including for mortgages, the World Bank said recently. This development could help unlock a housing market in the U.S. that has been hit hard by expensive home loans and elevated prices. Since March 2022, the U.S. central bank has hiked interest rates at an aggressive pace not seen since the 1980s to a two-decade high of 5.25 to 5.5 percent current range. This has pushed up the cost of borrowing for mortgages to its highest in 20 years. That policy move was geared to help slow down inflation, which still sits above the Fed’s target of 2 percent.

But economists at the World Bank expect that inflation will moderate over the next two years and by the end of 2026 interest rates will come down along with it, which experts say will buoy the housing market. “By the end of 2026, borrowing rates are expected to have declined substantially as inflation returns close to target,” the global financial institution said in a report. High interest rates in the U.S. have tightened financial conditions in the world’s largest economy. But American consumers have powered through the restrictive environment helped by savings from the pandemic and contributed to economic growth that have defied expectations of a slowdown.

Source: Newsweek