Will Mortgage Rates Go Up After the November Fed Meeting?

Will mortgage rates rise after the Fed meets?

The Federal Reserve will hold its next Open Market Committee meeting on Oct. 31-Nov. 1. With it, comes the question of another rate hike.

Since May, the annualized inflation rate moved between 3% and 4%, but the central bank has a long-term goal of 2%. Despite the Fed’s efforts, the overall economy continues to do well and buoy inflation.

The Fed came out of its September meeting and decided to skip a hike. It also stated it will adjust its policies as necessary. While things can certainly change, signs point to a second consecutive hike pause.

“I believe we are at the point where we can hold rates where they are. Economic and financial conditions are evolving as I expected, perhaps even a tad better. I do see disinflation underway, and I expect it to continue,” Patrick Harker, president of the Federal Reserve Bank of Philadelphia, said at the 2023 MBA Annual Conference.

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 3.7% in September, according to the U.S. Bureau of Labor Statistics. During this time, the Fed adjusted its tightening policy. Most recently, the central bank made hike fed funds rate target went from hikes of 50 and 75 basis points, to 25-basis-point hikes in May and July, while skipping hikes altogether in June and September.

The FOMC could always reverse course, but many experts anticipate another hike pause at its November meeting.

“Our view is that the Fed is done. This does run counter to their own suggestion at their last meeting in September, where they put out projections saying it still needs one more hike,” Mike Fratantoni, chief economist at the Mortgage Bankers Association, said at the 2023 MBA Annual Conference. “But if you listen to the speeches that they’ve given the last couple of weeks, even some of the more hawkish members are saying ‘we probably don’t need to hike anymore.’ Right now, they have two more chances this year. I think they’re definitely not going to hike in November, with a small chance that they would in December.”

Interest rate growth could continue

Interest rates trended up through the first 10 months of 2023, with the average 30-year fixed mortgage ranging from 6.09% to 7.63%, 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.

Due to 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 and inched up one basis point following September’s pause.

Advice for borrowers

Bringing down inflation and keeping it there continues to prove difficult — especially with mortgage rates at 20-year highs.

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 November’s Fed meeting.