Will Mortgage Rates Go Up After the January Fed Meeting?

Will mortgage rates rise after the Fed meets?

The Federal Reserve will hold its next Open Market Committee meeting on Jan. 30-31. Will it come with a rate hike or a rate cut?

The annualized inflation rate ended 2023 at 3.4% after starting the year at 6.4%. The Fed has a long-term goal of 2% and decided to skip a hike at its last three meetings.

In December, the central bank hinted there would be multiple rate cuts in 2024, with some experts anticipating that could happen as soon as the January meeting.

Will the Fed stop raising rates in 2024?

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 held the fed funds rate target steady in September, November and December.

The FOMC could always reverse course since the rate of inflation still isn’t as low as they want it, but many experts anticipate another hike pause at its January meeting.

“Strong economic data hint that the first Fed rate cuts may be delayed, and that fewer policy rate cuts than previously thought could be in the cards for 2024. Higher than expected employment and wage growth, the retail sales upside surprise in December as well as falling unemployment claims at the start of this year are all signs that point to stronger economic activity,” said Orphe Divounguy, senior macroeconomist at Zillow Home Loans.

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. Borrowers finally got relief as rates started to dissipate in the winter months. Most recently, the 30-year FRM reached 6.6% on Jan. 18.

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 2023, 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. Although, they fell eight basis points (0.08%) the day following December’s hike pause.

Advice for borrowers

Bringing down inflation and keeping it there continues to prove difficult.

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 January’s Fed meeting.