The May Fed meeting is coming; will mortgage rates rise again?


Aly Yale
Military VA Loan contributor

Another meeting, another rate hike

It’s that time again. We’re a week out from the next Federal Open Market Committee meeting and, more than likely, yet another hike in the federal funds rate.

The Fed has raised rates at its last nine meetings in an attempt to thwart inflation. Though its attempts have largely worked (inflation has eased considerably since the rate increase campaign began last March), many of the FOMC’s members project there’s at least one more rate hike in the cards for this year.

As one recent Federal Reserve president told reporters, “One more move should be enough for us.” How much will that one rate hike be when the Fed meets May 2-3, and what will it mean for mortgage rates? Here’s what you need to know.

Check your VA home buying eligibility. Start here (Mar 3rd, 2024)

One last hike?

If you look at the projection materials from the last Fed meeting, the bulk of FOMC members think one more 25-basis-point rate hike will be required this year. There are a handful that predict more are needed or, at least, larger ones, to properly tame inflation.

The markets appear to agree with the former. According to the CME FedWatch Tool, there’s about an 80% chance the Fed increases its rate by 25 points next week. About 20% think there will be no rate hike at all.

Not many members have indicated how they’ll vote this time around, but Atlanta Federal Reserve President Raphael Bostic recently told CNBC’s Squawk on the Street that “One more move should be enough for us to then take a step back and see how our policy is flowing through the economy — to understand the extent to which inflation is returning back to our target.”

If the Fed does move in this direction, it would bring the benchmark rate up to the 5-5.25% range — the highest it’s been since 2007, just before the Great Recession.

Mortgage rates could move higher

Long-term mortgage rates aren’t directly linked to the Fed’s rate, but if you look at the trajectory of 30-year loan rates over the last two years, it’s clear the Federal Reserve’s moves have made a difference.

Since the Fed started increasing its rate in March 2022, the average rate on a 30-year mortgage has climbed from 3.76% to as high as 7.08%, according to Freddie Mac. While it’s ping-ponged between 6% and 7% since November, rates are still nearly twice as high as they were prior to the Fed’s rate hikes.

Still, that doesn’t necessarily mean mortgage rates will rise after the May Fed meeting. Many times, markets price projected rates in advance — which may be why mortgage rates increased last week after five straight weeks of declines.

How buyers should proceed

If you’re hoping to buy a home and your budget is highly rate-sensitive — meaning even a slight bump in rates could put things out of your price range — then it might be smart to lock your rate now before the Fed makes any moves. While there’s no guarantee it will happen, there’s a definite possibility that rates could increase both as we get closer to the Fed’s meeting date — as well as in the days following.

In the event your purchase or refinance is further out, you may have wiggle room to wait. Most experts — the Mortgage Bankers Association and Fannie Mae included — expect rates to fall under 6% by the end of the year.

Check your VA home buying eligibility. Start here (Mar 3rd, 2024)