Will Mortgage Rates Go Down After the May Fed Meeting?

Will mortgage rates rise after the Fed meets?

The Federal Reserve will hold its next Open Market Committee meeting on April 30-May 1. 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 3.5% in March from 3.2% in February and 3.1% in January. The Fed has a long-term goal of 2% and decided to skip a hike at its last five meetings.

At its March meeting, the central bank implied there would be potential for multiple rate cuts in 2024. However, those cuts might be delayed as inflation inched up through the year’s first quarter.

Will the Fed cut rates in 2024?

Coming out of its March meeting, the FOMC signaled cuts could come as soon as May. However, the latest inflation data likely pushes that down the road.

As the Fed’s job includes stabilizing the U.S. financial system and setting monetary policy, it’s responsible for maintaining a long-term inflation rate of 2%. Keeping inflation near that level keeps prices steady for consumers.

The annualized rate started surging in 2021 and spiked to a 41-year high of 9.1% in June 2022, according to the U.S. Bureau of Labor Statistics. That year, the Federal Open Market Committee (FOMC) took action by hiking the federal funds rate to tame inflation.

The Fed adjusted its monetary tightening policy multiple times since then. Most recently, the central bank held the fed funds rate target steady in September, November, December, January and March. The latest inflation reading crept up to 3.5% in March 2024.

Although forecasts heading into 2024 optimistically 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 May meeting.

“March’s Consumer Price Index report — which showed uncomfortably high price increases for a second month in the headline figures and third month in the core data — is creating a wrinkle for the Fed and investors as they contemplate the economy’s path forward,” said Danielle Hale, chief economist at Realtor.com.

“The improvement in inflation observed at the end of 2023 has evaporated, bolstering the Fed’s cautious approach to easing monetary policy back to a more neutral stance. Whether mortgage rates continue to chart a higher course, or ease back—as they are expected to do before the year’s end — will depend on the economic data out in May. Although inflation has consistently surprised to the upside in recent months, that trend is not expected to last.”

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 April 11, 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, 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. Most recently, they fell eight (0.08%) and seven (0.07%) basis points the day following December and January’s respective hike pauses, while growing 13 (0.13%) basis points after March’s.

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 May’s Fed meeting.