Will Mortgage Rates Go Down After the March Fed Meeting?

Will mortgage rates rise after the Fed meets?

The Federal Reserve will hold its next Open Market Committee meeting on March 19-20. Will it come with a rate hike or a cut? Or will the committee continue holding rates steady?

The annualized inflation rate crept up to 3.2% in February after falling from 3.4% in December to 3.1% in January. The Fed has a long-term goal of 2% and decided to skip a hike at its last four meetings.

In January, the central bank implied there would possibly be three rate cuts in 2024. However, those might not start until the May or June 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 reached a 41-year high of 9.1% in June 2022, according to the U.S. Bureau of Labor Statistics. The latest reading hit 3.2% in February 2024. The Fed adjusted its tightening policy multiple times during this span. Most recently, the central bank held the fed funds rate target steady in September, November, December and January.

While optimistic forecasts heading into 2024 projected rate cuts as early as March, inflation has not cooled to the degree the FOMC would like. Although the committee could always surprise us, many experts anticipate another hike pause at its March meeting.

“The Fed is seeking ‘greater confidence’ on inflation before it starts normalizing its policy stance. We expect progress on inflation in coming months will give the Fed enough confidence to begin a gradual cutting cycle in June,” said Michael Gapen, chief U.S. economist at Bank of America.

Interest rate growth could continue

Interest rates trended up through most of 2023, with the average 30-year fixed mortgage climbing to a yearly high of 7.63%, according to Freddie Mac. Borrowers finally saw some relief as rates dissipated in the winter months. On March 7, the 30-year FRM reached 6.88%.

Although the annualized pace of inflation is falling overall, 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. At the end of last year, the Fed announced plans to cut its federal funds rate multiple times in 2024.

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 (0.08%) and seven (0.07%) basis points the day following December and January’s hike pauses.

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 March’s Fed meeting.