Will Mortgage Rates Go Down After the November Fed Meeting?

Will mortgage rates rise after the Fed meets?

The Federal Reserve will hold its next Open Market Committee meeting on November 6-7. Will it come with another rate cut? Or will the committee revert to keeping rates steady?

While it remains above the Fed’s long-term goal of 2%, the annualized inflation rate dropped for the sixth straight month, going from 3.5% in March to 2.4% in September.

At its prior meeting in September, the central bank made a 50-basis point rate cut and surprised much of the industry. For November’s meeting, will the inflation indicators justify cutting the fed funds rate again?

Will the Fed cut rates in 2024?

With the economy slowing and inflation descending, the FOMC signaled in July that a rate cut should finally come in September. The central bank has been waiting for sustainably softer market data before making a cut.

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 June and July, before making a 50-basis point cut in September. The latest inflation reading crept down to 2.4% in September 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 until recently. The committee could always surprise us, but some experts anticipate a 25-basis point cut in November.

“The inflation measures in this third quarter report show further progress towards the Fed’s inflation target, with the core Personal Consumption Expenditures metric growing at a 2.2% rate,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association. “All in, these data are in line with our forecast, and we expect that the Federal Reserve will cut rates by 25 basis points at its [November] meeting.”

A Bank of America survey showed a 59% share of fund managers forecast at least one more rate cut this year, with two meetings left to go in 2024.

Interest rate growth could continue

Interest rates trended up through 2023, with the average 30-year fixed mortgage climbing to a yearly high of 7.79%, according to Freddie Mac. They came back down in 2024, with the 30-year FRM reaching 6.54% on October 24.

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 always return 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 and potentially other 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. Following the three most recent rate decisions, they decreased four (0.04%) and five (0.05%) points after June and July’s rate pauses, respectively, and fell 11 (0.11%) points after September’s cut.

Advice for borrowers

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.

“Because mortgage rates tend to fluctuate, I always advise buyers to focus on their specific budget and needs rather than trying to predict economic factors,” said Nick Boniakowski, head of agent partnerships at Opendoor.

If you’re ready to become a homeowner, speak with a local mortgage lender to see what loans and interest rates you can qualify for ahead of November’s Fed meeting.