Will mortgage rates go up after the December Fed meeting?

December 7, 2022 - 3 min read

Will mortgage rates rise after the Fed meets?

The Federal Reserve’s next Open Market Committee meeting on Dec. 13-14 approaches and another rate hike should come as no surprise.

Although, it could be smaller than originally anticipated and break the current streak of historic highs. The Fed made 75-point rate hikes at each of its last four meetings — something not previously seen since 1994.

Fed Chair Jerome Powell said in his latest press conference that “the time for moderating the pace of rate increases may come as soon as the December meeting.” However, the November jobs report could change that plan.

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Interest rate growth is still likely

Back in May, the Fed realized the country’s high inflation rate wasn’t transitory and enacted a plan to tame it. It began raising the target federal funds rate at each of its FOMC meetings — including four consecutive record-high hikes of 75 basis points each. The central bank has the duty to keep inflation around 2% over time in order to keep prices stabilized.

It happened gradually but annualized inflation has declined in each of the past five months. After reaching a 40-year high of 9.1% in June, the inflation rate decreased to 8.5% in July, 8.3% in August, 8.2% in September, and 7.7% in October, according to the U.S. Bureau of Labor Statistics.

Will the Fed stop raising rates in 2023?

While Powell noted the central bank may reduce the size of rate hikes if inflation continues to dissipate, the annualized pace is still far from its goal. Because of this, the hikes will probably continue throughout 2023 and possibly beyond.

“It is likely that restoring price stability will require holding policy at a restrictive level for some time. We will stay the course until the job is done,” Powell said.

Although, November’s jobs report complicates matters. It showed a strong-but-tightening labor market with rapid wage growth, which keeps pressure on the bank to keep rate hikes high.

The jobs report “shows that recent monetary tightening has, to this point, had minimal impact on labor markets. The strong wage growth, in particular, leads us to believe the Federal Reserve will not soon deviate from their expected course of additional tightening,” said Doug Duncan, chief economist at Fannie Mae

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. Previously, the Fed announced plans to hike its federal funds rate at each of its upcoming 2022 meetings.

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.

Immediately after the FOMC meetings in June and September, the average 30-year fixed rate mortgage spiked 55 basis points (0.55%) and 27 basis points (0.27%), respectively. However, the average 30-year FRM fell 24 basis points (0.24%) and 13 basis points (0.13%) on the days following the July and November meetings.

Advice for borrowers

Interest rates more than doubled over the course of 2022. While inflation has started to dissipate, the Fed will do what it must to keep bringing it down to a normal level.

Mortgage rates typically grow in response to Fed actions and more hikes could lead to more growth. However, they’re still below average historically and you can always refinance once they come down. Remember, homeownership is how many people build wealth and the sooner you secure a mortgage, the sooner you start building home equity.

If you’re ready to apply for a home loan, talk to a local lender and see what rate you qualify for ahead of December’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.