Fed gears up for June meeting; will it be deja vu once again?

Aly Yale
Military VA Loan contributor

A break from the norm

The Federal Reserve is getting ready for its fourth meeting of the year, and if you’ve been reading the headlines, it’s shaping up to be a much different one than its precedents.

At all three of the central bank’s previous 2023 meetings — and at every meeting since March 2022, in fact — the Fed has voted to increase its benchmark interest rate by anywhere from 25 to 75 basis points in an attempt to tame inflation.

It appears those days may be numbered, though. According to predictions, though, there’s a good chance the June 13-14 meeting will mark the end of those rate hikes — at least temporarily.

What would it mean for mortgage rates if that were true? Here’s what you need to know.

Check your VA home buying eligibility. Start here (Jun 16th, 2024)

Pausing rate hikes

According to the CME FedWatch Tool, which uses investor activity to predict Fed policy, there’s about an 80% chance the Fed increases its benchmark rate at next week’s meeting. There’s only a one-in-five shot the bank hikes rates to the 5.25-5.5% range — a 25-point increase compared to last month.

Members of the Federal Open Market Committee seem to be in agreement, at least judging by recent media statements.

“Skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming,” Fed Governor Philip Jefferson said in a recent speech.

Philadelphia Fed President Patrick Harker said something similar days later, telling reporters, “I am in the camp increasingly coming into this meeting thinking that we really should skip.”

Mortgage rates could fall

If the Fed pauses its rate hikes, it could undoubtedly trickle down to mortgage rates. While long-term mortgage rates aren’t directly tied to the Fed’s moves, if you look at where 30-year loan rates have trended over the last two years, it’s clear the central bank’s policies have an impact.

Since the Fed started its rate-hike journey in March 2022, the average 30-year fixed-rate mortgage climbed from 3.76% to a high point of 7.08%, according to Freddie Mac. As of June 1, they sit at an average of 6.79% — up 170 basis points in just a one-year period.

Should the Fed pause its rate hikes, it will likely give borrowers a reprieve from further bumps in mortgage rates — at least for the foreseeable future. It could even result in slightly lower rates, according to industry players. The Mortgage Bankers Association predicts rates will drop to 6% by the end of the third quarter. Fannie Mae expects a 6.2% average.

Act fast if rates drop

Unless conditions change drastically in the next few days, most signs point to a pause in the Fed’s long stream of rate hikes. For homebuyers and refinancers, this could mean more stable mortgage rates or, potentially, even lower rates in the weeks to come.

If you’re thinking about buying a home or refinancing your current loan, prepare your documentation and application materials, and be ready to pull the trigger if a rate drop occurs. If the Fed does skip a rate hike this month, it may only be temporary, so acting fast will be critical to snagging that lower rate.

Check your VA home buying eligibility. Start here (Jun 16th, 2024)