Will Mortgage Rates Go Up After the July Fed Meeting?

July 19, 2023 - 3 min read

Will mortgage rates rise after the Fed meets?

With Taylor Swift propping up the economy, the Federal Reserve has a difficult decision to make.

The central bank will hold its next Open Market Committee meeting on July 25-26 and with it comes the question of another rate hike. While the annualized inflation rate proved to be stickier than expected, it continues to dwindle, falling from 4% in May to 3% in June — both its lowest point and first time below 4% since March 2021.

The Fed ultimately wants long-term inflation settling near 2%. While it’s moving in the right direction, further, lesser hikes could be coming.

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Will the Fed stop raising rates in 2023?

The Fed has the responsibility of maintaining an inflation rate around 2% over time. Keeping inflation near that pace stabilizes prices for consumers and aids affordability.

Once the annualized rate of inflation climbed above 8% in 2022, the Federal Open Market Committee (FOMC) devised a plan of hiking the federal funds rate to tame it.

As the national inflation rate gradually declined for 12 straight months — from June 2022’s 41-year high of 9.1% to 3% in June 2023, according to the U.S. Bureau of Labor Statistics — the Fed adjusted its tightening policy. The fed funds rate target went from hikes of 50 and 75 basis points, to 25 basis points in February, March, and May, and skipping a hike altogether in June.

However, experts fully anticipate a small rate hike following July’s FOMC meeting. After June’s wait-and-see approach, Fed Chair Jerome Powell said, “the committee clearly believes that there’s more work to do, that there are more rate hikes that are likely to be appropriate.”

Interest rate growth could continue

Interest rates mostly trended up through the first half of 2023, with the average 30-year fixed mortgage ranging from 6.09% to 6.79%, according to Freddie Mac. They went even higher to open the third quarter, climbing to 6.96% on July 13.

Although the annualized pace of inflation is falling, it’s still above the Fed’s goal. Because of this, more hikes and tightening monetary policies could continue until inflation gets brought down to a normalized level.

Interest rates are notoriously difficult to predict but typically rise in response to Fed tightening. Because of the rapid rate growth we saw in 2022, some lenders will allow you to lock in a rate for 90 days at little or no cost so you’re protected from higher rates if you don’t close quickly.

A few examples of lenders offering this include AmeriSave Mortgage, Quicken Loans, and Rocket Mortgage.

Some lenders are even offering borrowers refinances without repeat lending fees or appraisal fees when rates eventually hit a down cycle. When mortgage shopping, be sure to ask your loan officer about these services.

Mortgage rates and the Fed’s role

The Federal Reserve doesn’t determine mortgage rates. Instead, rates are intrinsically tied to the Fed’s actions. Last year, the Fed announced plans to hike its federal funds rate at each of its meetings in 2022 and likely in 2023 as well.

The fed funds rate is the amount banks pay to borrow money from each other overnight and an increase signals higher inflation and economic expansion. Mortgage interest rates typically rise in response to growth in the fed funds rate.

How mortgage rates respond in the immediate aftermath of these FOMC meetings has been a mixed bag over the last year. Most recently, they declined four basis points (0.04%) the day after the 25-point hike on May 3, and inched down two basis points (0.02%) following June’s paused hike.

Advice for borrowers

Inflation keeps dissipating but the Fed will continue taking necessary action to get it down to around 2%.

While rates could grow at any point, they’re still below average historically and many experts and housing authorities predict them to decline over the course of 2023. Even if you missed out on the rock-bottom rates from the last couple years, you can always refinance once they eventually decrease. It’s also important to note that many people build wealth through homeownership and home equity.

If you’re ready to apply for a mortgage, speak with a local lender to see what loan type and interest rate you can qualify for ahead of July’s Fed meeting.

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Paul Centopani
Authored By: Paul Centopani
The Mortgage Reports Editor
Paul Centopani is a writer and editor who started covering the lending and housing markets in 2018. Previous to joining The Mortgage Reports, he was a reporter for National Mortgage News. Paul grew up in Connecticut, graduated from Binghamton University and now lives in Chicago after a decade in New York and the D.C. area.