Headwinds are Building, Prepare for a Significant Market Correction, Says Top Market Analyst

June 21, 2021 7:03 AM EDT

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Moody’s Analytics economist Mark Zandi believes the equity market is bracing for a correction as the Fed prepares to switch gears and start tapering.

A more hawkish Fed is likely to trigger a market correction between 10% and 20% going forward.

“The headwinds are building for the equity market,” Zandi told CNBC. “The Federal Reserve has got to switch gears here because the economy is so strong.”

“The economy is going to be rip-roaring. Unemployment is going to be low. Wage growth is going to be strong.”

“I wouldn’t count on rates staying at 1.5% for very long given what’s going on. Inflation is going to be higher than it was pre-pandemic. The Fed has been struggling for at least a quarter of a century to get inflation up, and I think they’ll be able to get that.”

Zandi also spoke about potential selloffs in commodities and cryptocurrency sectors, as well as issues the market is facing with higher mortgage rates. The average rate on the 30-year fixed mortgage moved to 3.25% following the last Fed meeting.

“Markets were somewhat surprised by the Fed’s rate hike outlook. Granted, the Fed Funds Rate doesn’t control mortgage rates, but the outlook speaks to how quickly the Fed would need to dial back its bond buying programs (aka ‘tapering’). Those programs definitely help keep rates low,” said Matthew Graham, chief operating officer of Mortgage News Daily.

In February, the average 30-year mortgage was at 2.75%.

“For home buyers, this means it’s a good idea to take a fresh look at your home shopping budget. Run the numbers and know what it means for your search price if rates tick up a quarter point, but keep these worries in context,” said Danielle Hale, chief economist for realtor.com.

“Even if mortgage rates rise, they are not the biggest challenge for today’s buyers, who are still contending with relatively few, fast-selling home choices and record high asking prices.”

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