How will the Fed meeting affect mortgage rates?

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Fed week is finally here. The Federal Reserve will decide this week whether to raise short-term interest rates. Markets are pricing in only a 28% chance of the Fed raising rates, and the consensus of economists is that the Fed won’t pull the trigger. So, how does this affect mortgage rates?

Until the Fed’s announcement on Thurs, I don’t expect rates to move too much absent some unexpected happening. Markets are in wait-mode. This prediction is a little risky because this week provides some important economic reports, including retail sales and consumer inflation numbers. Should either of these be very strong, rates could trickle higher in anticipation of a Fed rate hike.

If the Fed doesn’t hike short-term rates on Thurs, we could see a short relief rally, meaning lower mortgage rates, but I think it will be very short and rather shallow. Markets generally don’t expect a hike now, and they’ll just start anticipating the next Fed meeting.

If the Fed hikes rates on Thurs, I think we could see an outsized initial reaction with rates rising quickly. However, you must remember that the Fed sets short-term interest rates. Mortgage and other longer-term rates are more in tune with inflation expectations and global economic concerns. For that reason, I think rates could recover within a couple weeks, especially if the Fed reiterates its intention to raise rates very slowly.