Mortgage Rates Poised for More Jumps as Federal Reserve Meets


Aly Yale
Military VA Loan contributor

It was just a month ago that the Federal Reserve voted to raise the federal funds rate by half a point. Since then, mortgage rates have been volatile. In the weeks following the May 3-4 meeting, the average rate on 30-year fixed-rate loans has jumped from 5.10% to 5.30% and back down to 5.09% again.

When you look at mortgage rates compared to the start of the year, it’s clear the Fed’s actions have been a major influencer. Back in January, the average 30-year mortgage rate was barely over 3%. Now, two rate hikes later, it’s nearly 200 basis points higher.

We’re yet again on the cusp of another Fed meeting (June 14-15) and, by the looks of it, another rate hike as well. What will it mean if you’re buying a home or refinancing your mortgage loan in the near future? Let’s take a look.

Click here to check today’s VA rates (Jul 6th, 2022)

The Fed’s poised to raise rates again

According to CME Group’s FedWatch Tool, there’s about a 98% chance the Fed will increase its target funds rate by 50 basis points (0.50) — as we saw in May — and around a 2% chance the rate hike is 75 basis points.

Minutes from last month’s meeting back this prediction up. According to the documents, members of the Federal Open Market Committee anticipate needing half-point increases at the next two meetings (at least) and another 125 basis points worth of increases by mid-2023. The goal is to reach a target range with a midpoint of 3.13% by that time.

“Participants agreed that the Committee should expeditiously move the stance of monetary policy toward a neutral posture, through both increases in the target range for the federal funds rate and reductions in the size of the Federal Reserve’s balance sheet,” the minutes read. “Most participants judged that 50-basis-point increases in the target range would likely be appropriate at the next couple of meetings.”

More than that, Fed. Governor Christopher Waller has even said he backs several 50-basis-point jumps in the coming months.

“I am advocating 50 [basis point increases] on the table every meeting until we see substantial reductions in inflation,” Waller said at the Institute for Monetary and Financial Stability in Frankfurt last week. “Until we get that, I don’t see the point of stopping.”

Federal Reserve Vice Chair Lael Brainard echoed similar sentiments on CNBC’s Squawk on the Street just days later.

Will mortgage rates follow?

The Fed’s benchmark rate isn’t directly tied to mortgage rates, but it does have an impact. Just take a look at Freddie Mac’s Primary Mortgage Market Survey for guidance.

When the Fed voted to raise its federal funds rate by 25 basis points in March, mortgage rates jumped from 3.85% to 4.67% over just a few weeks. In the weeks following the rate hike in May, mortgage rates again rose.

While mortgage rates have moderated since then, there was still an initial higher rate period following last month’s meeting. Given this, we can probably expect mortgage rates to rise again once the Fed makes its move.

Make your moves now

There’s no crystal ball here, but if things continue as they have following past Fed meetings, we’re likely to see mortgage rates increase after the June 15-16 meetings. So if you’re eyeing a refinance or plan to close on a home, you might want to lock in your interest rate before the middle of the month. Waiting until after the meeting could cost you.

If the timing isn’t right, start budgeting for a higher monthly payment or consider reducing the price range you plan to shop in. This can help offset the added costs higher rates will bring about.

Click here to check today’s VA rates (Jul 6th, 2022)