Will Mortgage Rates Go Up After the June Fed Meeting?

Will mortgage rates rise after the Fed meets?

The Federal Reserve will hold its next Open Market Committee meeting on June 13-14 and with it will likely come another rate hike.

Annualized inflation continues to gradually decrease from June 2022’s 41-year high of 9.1% to 4.9% in April 2023. However, it’s proven to be stickier than anticipated and the FOMC wants to bring it down to around 2%.

With the uncertainty stemmed from debt ceiling negotiations and the economy showing resiliency, the Fed may have to keep hiking its rates despite the hopeful optimism for their conclusion.

Will the Fed stop raising rates in 2023?

The Fed has the responsibility of maintaining an inflation rate around 2% over time. Keeping inflation near that pace stabilizes prices for consumers and aids affordability. As the annualized rate of inflation climbed above 8% last year, the central bank devised a plan of hiking the federal funds rate to tame it.

After multiple hikes of 50 and 75 basis points, the FOMC raised its fed funds rate target by 25 basis points in February, March, and again in May. The national inflation rate gradually dwindled for 10 straight months, decreasing from June 2022’s 41-year high of 9.1% to 4.9% in April 2023, according to the U.S. Bureau of Labor Statistics.

Another rate hike following June’s FOMC meeting feels like a coin toss. Some committee members vocalized their desire to take a wait-and-see approach with the ramifications of the debt ceiling agreement before making an additional hike.

“Skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming,” Fed Governor Philip Jefferson said in a recent speech.

Interest rate growth could continue

Interest rates mostly trended up through the first half of 2023, with the average 30-year fixed mortgage ranging from 6.09% to 6.79%, according to Freddie Mac.

Although the annualized pace of inflation is falling, it’s still nearly 2.5 times higher than the Fed’s goal. Because of this, more hikes and tightening monetary policies could continue until inflation gets brought down to a normalized level.

Interest rates are notoriously difficult to predict but typically rise in response to Fed tightening. Because of the rapid rate growth we saw in 2022, some lenders will allow you to lock in a rate for 90 days at little or no cost so you’re protected from higher rates if you don’t close quickly.

A few examples of lenders offering this include AmeriSave Mortgage, Quicken Loans, and Rocket Mortgage.

Some lenders are even offering borrowers refinances without repeat lending fees or appraisal fees when rates eventually hit a down cycle. When mortgage shopping, be sure to ask your loan officer about these services.

Mortgage rates and the Fed’s role

The Federal Reserve doesn’t determine mortgage rates. Instead, rates are intrinsically tied to the Fed’s actions. Last year, the Fed announced plans to hike its federal funds rate at each of its meetings in 2022 and likely in 2023 as well.

The fed funds rate is the amount banks pay to borrow money from each other overnight and an increase signals higher inflation and economic expansion. Mortgage interest rates typically rise in response to growth in the fed funds rate.

How mortgage rates respond in the immediate aftermath of these FOMC meetings has been a mixed bag over the last year. Most recently, they declined four basis points (0.04%) the day after the 25-point hike on May 3.

Advice for borrowers

Inflation has dissipated but the Fed will keep taking action it deems necessary to get it back down to around 2%.

While rates could grow at any point, they’re still below average historically and many experts and housing authorities predict them to decrease over the course of 2023. Even if you missed out on the rock-bottom rates of 2020 and 2021, you can always refinance once they eventually come down. It’s also important to remember that many people build wealth through homeownership and home equity.

If you’re ready to apply for a mortgage, speak with a local lender to see what loan type and interest rate you can qualify for ahead of June’s Fed meeting.