Will mortgage rates go up after the November Fed meeting?

Will mortgage rates rise after the Fed meets?

The Federal Reserve’s next Open Market Committee meeting on Nov. 1-2 is approaching and another aggressive rate hike is expected.

With inflation remaining persistent, mortgage rates have continued to increase and markets are adjusting “for the likelihood of further Fed actions to control inflation, now pricing in a 75-basis point rate hike at the November FOMC meeting,” according to Paul Thomas, VP of mortgages capital markets at Zillow.

The Fed made 75-point rate hikes at each of its last three meetings, its largest rate hikes in 28 years. All signs point to the same hike or possibly an even larger one in November.

Interest rate growth is likely

Starting in May, the Fed has been adamant about needing to reduce inflation by raising the target federal funds rate at each of its FOMC meetings. One of the central bank’s roles is to keep inflation around 2% over time and stabilize prices.

“The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched,” Fed Chair Jerome Powell said in a press conference on Sept. 21.

While it hasn’t happened as quickly as the Fed would like, annualized inflation has come down for the last four months. After climbing to a 40-year high of 9.1% in June, it drifted to 8.5% in July, 8.3% in August, and 8.2% in September, according to the U.S. Bureau of Labor Statistics.

The Fed came out and said it will keep hiking rates until the country’s relentless inflation subsides to a manageable level. November’s FOMC meeting should bring another large hike. What’s not yet clear is how much mortgage lenders already accounted for that hike in their rates.

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. Previously, the Fed announced plans to hike its federal funds rate at each of its upcoming 2022 meetings.

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.

Immediately following the FOMC meetings in June and September, the average 30-year fixed rate mortgage spiked 55 basis points (0.55%) and 27 basis points (0.27%), respectively. However, the day after the July meeting wrapped, the average 30-year FRM fell 24 basis points (0.24%).

Advice for borrowers

Mortgage rates have more than doubled since 2022 began. Although recession concerns may temper rate growth and even bring some weekly declines, the Fed will continue in its quest to bring down inflation.

Interest rates typically grow reactively to Fed actions and might not go lower in the near future than they are right now. Historically speaking, they’re still low, and the sooner you secure a mortgage, the sooner you start building home equity.

If you’re ready to apply for a home loan or refinance your current mortgage, talk to a local lender and see what rate you can lock into before November’s Fed meeting.