Fed gears up for fourth large rate hike of the year

Aly Yale
Military VA Loan contributor

Another big rate hike is in the cards

When the Federal Reserve’s Open Market Committee comes together November 1-2, the group is largely expected to vote for a 75-basis-point rate hike — the fourth of its kind this year.

The move would be yet another attempt to tamp down inflation, which is now up over 8%. While that’s down from the 9%-plus rate seen a few months ago, it’s likely not enough to spur any pullback from the Fed — at least not yet.

As the FOMC’s post-September-meeting statement said, “The committee is strongly committed to returning inflation to its 2% objective.” What does that mean for home buyers and mortgage borrowers? Here’s what you need to know.

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75 points higher

Nothing’s set in stone, but if you look at CME Group’s FedWatch tool, a 75-basis-point rate hike is pretty darn close to being just that. According to the predictor, there’s a whopping 92% chance the Fed raises its benchmark rate to 3.75%-4% next week — up from the 3%-3.25% rate seen right now.

If the forecast comes to fruition, it would mark the fourth 75-point increase since June and the sixth hike just this year.

“We have got to get inflation behind us,” Fed. Chair Jerome Powell said after last month’s meeting. “I wish there were a painless way to do that. There isn’t.”

Will mortgage rates follow?

The bump in the Fed’s benchmark rate means two things for mortgage borrowers. First, those with variable-rate loans will see an increase in their next adjustment period. The same goes for those with HELOCs and other short-term mortgages, as these are directly tied to the Fed’s rate.

Longer-term, fixed-rate mortgages aren’t as cut and dry. While higher Fed rates typically mean a bump in rates on these loans, that’s not always true. For example, 30-year mortgage rates jumped as much as half a point (0.50%) following Fed rate hikes in March, May, June, and September. After its July meeting, though, the average 30-year rate actually fell.

There’s no way to know exactly how the cards will fall this time around. Rates on 30-year loans have already increased more than a full percentage point since the month started.

Should you lock now or wait it out?

The Fed is on a mission to tame inflation, and until it does that, we can likely expect mortgage rates to keep rising. Since the Fed’s first rate hike earlier this year, mortgage rates have increased more than 3% — making buying a home and refinancing significantly more expensive.

If you’re considering a refinance or home purchase in the short term, locking your rate now could be wise — before rates have a chance to rise any further.

If you have some wiggle room in your schedule, though, you could wait it out in hopes of lower rates in 2023. The Fed has signaled it will consider a pullback on rate hikes at its December meeting. While that doesn’t mean it will forgo a rate hike altogether, it may mean lower mortgage rates are on the horizon sometime next year.

As always, talk to a mortgage professional if you’re thinking about buying a home and refinancing. They can help you strategize for your unique goals and budget.

Check your VA interest rates. Start here (Jul 15th, 2024)