The Fed is meeting next week; will it mean even higher mortgage rates?

Aly Yale
Military VA Loan contributor

Another Fed rate hike is coming down the pike

Another month, another Fed meeting. And if early predictions are right, another rate hike, too.

The Federal Open Market Committee (FOMC) is set to meet September 20-21, and with inflation still well above 8%, it’s largely looking like a repeat of the last few gatherings. Remember that the Fed raised rates in its March, May, June and July meetings, with the last two notching 75-basis-point hikes — the largest increases since 1994.

If the Fed acts similarly again, it would mark the fifth rate increase in 2022 alone. What’s the likelihood of that happening, though? And will it trickle down to mortgage rates? Let’s take a look at the projections.

Check today’s VA rates. Start here (Apr 23rd, 2024)

Experts, FOMC members on the same page

All indicators point to yet another increase in the Fed’s benchmark rate this month — and it will likely be a big one.

According to CME’s FedWatch Tool, there’s a 90% chance the FOMC will increase its rate by 75 basis points next week, which would bring the target rate up to 3% to 3.25%.

Federal Reserve Governor Chris Waller confirmed as much in a recent speech in Vienna, Austria, saying he supports a “significant” rate hike going into September’s meeting.

“Inflation is far too high, and it is too soon to say whether inflation is moving meaningfully and persistently downward,” Waller said. “I support continued increases in the FOMC’s policy rate and, based on what I know today, I support a significant increase at our next meeting on September 20 and 21 to get the policy rate to a setting that is clearly restricting demand.”

Fed Chair Jerome Powell expressed similar sentiments earlier this month, indicating that he is “strongly committed” to fighting inflation.

“History cautions strongly against prematurely loosening policy,” Powell said. “I can assure you that my colleagues and I are strongly committed to this project, and we will keep at it until the job is done.”

Mortgage rates are rising – and could increase more

So, what would that rate increase mean for mortgage borrowers? We’re actually already seeing some of its impact. When Powell and Waller make public comments that indicate a rate hike is in the cards, lenders tend to act quickly, pricing in higher rates to prepare for an expected dip in demand.

After Powell’s comments earlier this month, the 30-year mortgage rate jumped from 5.66% to 5.89%. We could see further price increases as we get closer to the meeting and beyond, too.

In March, when the Fed announced its first rate hike of the year, the average mortgage rate went from 3.76% at the start of the month to 4.67% by its end. Mortgage rates rose similarly in May and June, too.

July rates were a different story. Then, the 30-year rate rose 24 basis points in the weeks leading up to the meeting but fell slightly the day after its conclusion. This indicates that much of lenders’ reactions were felt before the meeting actually happened.

In short: Nothing’s set in stone this time around. Higher rates could be on the horizon, or we might be seeing the worst of things now. Only time will tell.

Mortgage borrowers should be proactive

The FOMC is probably going to increase its benchmark rate yet again next week, and while there’s no guarantee that means higher mortgage rates, the possibility is certainly there.

If you’re thinking of refinancing or buying a home, it might be smart to lock your rate now, before rates have the chance to rise further. If you do this, and rates drop later, you always have the option to refinance for a better rate in the future.

Make sure you shop around, too. Mortgage rates vary from lender to lender, so getting at least a few quotes can help you get the best deal possible.

Check today’s VA rates. Start here (Apr 23rd, 2024)