Fed Skips Rate Hike in November. Is This Good News for Mortgage Rates?

No Fed hike in November

The Federal Reserve concluded its November meeting by holding off on another rate hike.

With inflation in a holding pattern and the job market slowing, the central bank voted to keep the federal funds rate steady as “tighter financial and credit conditions for households and businesses are likely to weigh on economic activity,” according to the press release.

The skipped hike marks the second in a row and comes with little surprise. “While there are many great arguments for not needing to [hike] anymore, certainly the recent rise in the 10-year Treasury sort of did the job for them,” Mark Fleming, chief economist at First American, said at the 2023 MBA Annual Conference.

The Fed’s role and November’s FOMC meeting

The Fed doesn’t technically set mortgage interest rates. Multiple factors determine mortgage rate changes, but they do intrinsically correlate with the central bank’s policy actions.

After seeing the average 30-year fixed interest rate balloon 60 basis points (0.6%) since its last meeting, the Federal Open Market Committee (FOMC) held the federal funds target range static for the second time in a row. While this hike pause was mostly expected, the fight against inflation isn’t over.

The national inflation rate has been on a gradual downtrend for the 14 months — going from June 2022’s 41-year high of 9.1% to 3.7% in September, according to the U.S. Bureau of Labor Statistics. The FOMC’s objective is to bring inflation to around 2% over the long term.

“Many Fed officials in recent weeks have indicated that rates were high enough now that they could pause. Inflation is slowing, but not yet back to the 2% target range. This is the most important metric the Fed is watching right now. Even though third-quarter economic growth came in quite strong, and several job market indicators continue to show strength, so long as inflation continues to come down, the Fed is likely to pause at this level for some time,” Mortgage Bankers Association Chief Economist Mike Fratantoni said in a statement.

The FOMC will base its next moves on how their latest pause plays out and the overall economic outlook. The committee’s next meeting comes on Dec. 12-13 and will adjust its future policy actions as necessary.

How will mortgage rates react?

Interest rates trended upward throughout 2023, reaching a 23-year high in October. The FOMC’s actions have generated mixed results in their immediate aftermath.

Most recently, the average 30-year fixed-rate mortgage (FRM) rose one basis point (0.01%) following September’s hike pause and rose three basis points (0.03%) after July’s 25-point hike, according to Freddie Mac.

Interest rates typically rise alongside increases to the fed funds rate and run off of balance sheet holdings. In its statement, the FOMC described the U.S. banking system as “sound and resilient” and job gains remain strong but have moderated.

The FOMC’s pause in hiking strategy coupled with those economic indicators signal they believe inflation and interest rates should start to gradually dissipate.

Should you lock in a mortgage rate?

Mortgage rates are volatile by nature and multiple factors impact their trajectory.

Although the FOMC’s latest action indicates an expectation a downward trajectory for interest rates, there are no guarantees. Although the average 30-year FRM stands between 7% and 8%, you have ways to negotiate your rate down, get creative in cutting costs, and refinance when rates eventually hit a downcycle. Plus, homeownership comes with the benefit of building equity.

If you’re ready to become a homeowner, reach out to a local mortgage professional to see what rate and loan type you qualify for.