Will Mortgage Rates Go Down After the June Fed Meeting?

Will mortgage rates rise after the Fed meets?

The Federal Reserve will hold its next Open Market Committee meeting on June 11-12. Will it come with a rate hike or a cut? Or will the committee continue holding rates steady?

The annualized inflation rate inched down to 3.4% in April from 3.5% in March, but still sits above February’s 3.2% and January’s 3.1%. The Fed has a long-term goal of 2% and decided to skip a hike at its last six 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 further as inflation’s proven stickier than anticipated through the beginning of the year.

Will the Fed cut rates in 2024?

Coming out of its May meeting, the FOMC signaled cuts could come as soon as June. In all likelihood however, the latest inflation data 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, March and May. The latest inflation reading crept down to 3.4% in April 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 June meeting.

“Mortgage rates jumped up again this week as concerns over the growing US debt re-emerge. The Federal Reserve Beige Book, pointed to a slowing US private sector – a sign that inflation could slow,” said Orphe Divounguy, senior economist at Zillow Home Loans.

“But while slower consumer spending is expected to pull economic growth and inflation lower, rising government deficit spending could offset this drag. Expect more rate volatility ahead as the Fed and investors wait for more conclusive evidence of a return to low, stable and more predictable inflation.”

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 7.79%, according to Freddie Mac. Borrowers finally saw some relief as rates dissipated in the winter months. On May 30, 2024, the 30-year FRM reached 7.03%.

Although the annualized pace of inflation fell from the last two years, 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 seven (0.07%) basis points the day following January’s respective hike pauses, while growing 13 (0.13%) and five (0.05%) basis points after the pauses in March and May.

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 June’s Fed meeting.