Will Mortgage Rates Go Down After the December Fed Meeting?

Will mortgage rates rise after the Fed meets?

The Federal Reserve will hold its next Open Market Committee meeting on December 17-18. Will it come with another rate cut? Or will the committee revert to keeping rates steady?

While it still remains above the Fed’s long-term goal of 2%, the annualized inflation rate inched up for the second straight month, going to 2.7% in November from 2.4% in September. Though it sits below the year-ago rate of 3.1%

At its two prior meetings, the central bank made a cuts of 50 basis points in September and 25 basis points most recently in November. Will the inflation indicators justify cutting the fed funds rate again in December?

Will the Fed cut rates in December?

As the economy slowed and inflation descended, the FOMC signaled in July that much-anticipated rate cuts should finally come starting in September. The central bank had 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 and a 25-basis point cut in November. The latest inflation reading inched up for the second month in a row to 2.7% in November from 2.4% in September.

Despite that rise indicative of a stubbornly expanding economy, market experts overwhelming predict another 25-point Fed cut, as of December 11.

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 6.69% on December 5.

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 five (0.05%) points after July’s rate pause, and 11 (0.11%) points and one (0.01%) after September and November’s cuts, respectively.

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 December’s Fed meeting.