Will Mortgage Rates Go Up After the September Fed Meeting?

Will mortgage rates rise after the Fed meets?

The Federal Reserve will hold its next Open Market Committee meeting on Sept. 19-20. With it, comes the question of another rate hike.

The annualized inflation rate hovers around 3% but the central bank wants it settled near 2% in the long-term. Despite the gradual decreasing, inflation’s proved to be stickier than expected.

At the previous meeting, the Fed decided to raise its rates and said it would adjust its policies as necessary. While impossible to know how many more hikes are in store for 2023, “there is work left to do,” said Dallas Federal Reserve Bank President Lorie Logan. “I’m not yet convinced that we’ve extinguished excess inflation.”

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.

Once the annualized rate of inflation climbed above 8% in 2022, the Federal Open Market Committee (FOMC) devised a plan of hiking the federal funds rate to tame it.

The national inflation rate gradually declined for 12 straight months — from June 2022’s 41-year high of 9.1% to 3% in June 2023, before inching up to 3.2% in July, according to the U.S. Bureau of Labor Statistics. During this time, the Fed adjusted its tightening policy. The fed funds rate target went from hikes of 50 and 75 basis points, to 25 basis points in February, March, May, and July, while it skipped a hike altogether in June.

While the Fed could always change course, many experts anticipate the FOMC won’t make a hike at its September meeting.

Interest rate growth could continue

Interest rates trended up through the first eight months of 2023, with the average 30-year fixed mortgage ranging from 6.09% to 7.23%, according to Freddie Mac.

Although the annualized pace of inflation is falling, it’s still above 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 rose three basis points (0.03%) the day following July’s 25-point hike, declined four basis points (0.04%) after May’s 25-point hike, and inched down two basis points (0.02%) following June’s paused hike.

Advice for borrowers

Bringing and keeping inflation down continues to prove difficult and mortgage rates remain high.

While rates could grow at any point, they’re still below average historically. Even if you missed out on the rock-bottom rates from the last couple years, you can always refinance once they eventually hit a down cycle. It’s also important to note that many people build wealth through home equity.

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