Will Mortgage Rates Go Down After the July Fed Meeting?

Will mortgage rates rise after the Fed meets?

The Federal Reserve will hold its next Open Market Committee meeting on July 30-31. Will it finally come with a rate cut? Or will the committee continue holding rates steady?

The annualized inflation rate dropped from 3.3% in May to 3% in June, but remains above the Fed’s long-term goal of 2%.

At its June meeting, the central bank implied potential for at least one rate cut in 2024. However, any cuts might be delayed further as inflation’s proven stickier than anticipated through the beginning of the year. The FOMC skipped a hike or cut at its last seven meetings

Will the Fed cut rates in 2024?

Coming out of its June meeting, the FOMC signaled a rate cut could come as soon as July. However, that’ll likely get pushed to later in 2024, once inflation exhibits a sustainable downtrend.

As the Fed’s job includes stabilizing the U.S. financial system and setting monetary policy, it’s responsible for maintaining a long-term inflation rate of 2%. Keeping inflation near that level keeps prices steady for consumers.

The annualized rate started surging in 2021 and spiked to a 41-year high of 9.1% in June 2022, according to the U.S. Bureau of Labor Statistics. That year, the Federal Open Market Committee (FOMC) took action by hiking the federal funds rate to tame inflation.

The Fed adjusted its monetary tightening policy multiple times since then. Most recently, the central bank held the fed funds rate target steady in September, November, December, January, March, May and June. The latest inflation reading crept down to 3% in June 2024.

Although forecasts heading into 2024 optimistically projected rate cuts as early as March, inflation didn’t cool enough for the FOMC to reduce the federal funds rate. The committee could always surprise us, many experts anticipate another hike pause at its July meeting, although optimism grows.

A 62% share of investors predicted three rate cuts over the next year, starting in September, according to a July survey by Bank of America.

“Signs of cooling inflation, and the increased likelihood of the Federal Reserve cutting rates this fall, should cause mortgage rates to move lower, which would be welcome news to prospective homebuyers who may be unwilling, or unable, to jump into the housing market at today’s costs,” said Bob Broeksmit, president and CEO at the Mortgage Bankers Association.

Interest rate growth could continue

Interest rates trended up through most of 2023, with the average 30-year fixed mortgage climbing to a yearly high of 7.79%, according to Freddie Mac. Borrowers finally saw some relief as rates dissipated in the winter months. On July 18, 2024, the 30-year FRM reached 6.77%.

Although the annualized pace of inflation fell from the last two years, it’s still above the Fed’s goal. Because of this, 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.

Due to the rapid rate growth we saw in 2023, 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. At the end of last year, the Fed announced plans to cut its federal funds rate multiple times in 2024.

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. After the three most recent rate pauses, they grew 13 (0.13%) and five (0.05%) basis points in March and May respectively, while decreasing four (0.04%) points in June.

Advice for borrowers

Although inflation trends lower and takes important steps in the right direction, it probably won’t be enough for a rate cut this go around.

Even if you missed out on the rock-bottom rates from the last couple years, they’re still below average historically and you can always refinance once they hit a down cycle. It’s also important to note that many people build wealth through home equity.

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