There seems to be widespread consensus that the Federal Reserve’s Open Market Committee will put forth a 25-basis point rate hike this Wednesday, but what will happen in September, and what impact will that have on the mortgage market?
Marty Green, principal at Texas-based Polunsky Beitel Green, expects the Fed to confirm its intent to implement an additional rate hike increase this year.
He said recent data indicates inflation has moderated, but the Fed will continue its “hawkish stance” to reach a soft landing.
“I suspect they will also prepare the markets for another quarter-point increase later in the year, perhaps as soon as the September meeting,” Green said.
Michele Raneri, head of U.S. research and consulting at TransUnion, said she doesn’t expect the Fed to back off the rate hikes even though progress has been made on inflation.
“We may be waiting for a protracted period of cooling inflation before we see a halt to interest rate hikes,” Raneri said.
While there’s no direct connection, what will that mean for mortgage interest rates?
“The mortgage market, which will likely see another uptick in interest rates, may continue to be slow, as many consumers may hold off on making a home purchase in hopes that interest rates stabilize and, hopefully, come down soon thereafter. It remains to be seen whether cooling inflation may help motivate consumers who had been holding off due to increasing cost of living expenses.”
Watch it on The Interest: Brokers Take The Lead
Green said if mortgage rates get down between 5 and 6%, then it might help buyers and sellers get off the sidelines.
“I think if rates were able to narrow into the low sixes or high fives, you'd see some of that inventory come on the market as people say that differential is something they can live with,” Green said.
Getting to a terminal rate will be the key to returning to some sort of normalcy, according to Green.
“I think if we become more confident we are at the terminal rate for this rate hike cycle, than mortgage rates should settle in,” he added.
The Federal Reserve Open Market Committee opens its meeting today and will announce its decision on Wednesday, July 26. If it does raise rates, it will be the 11th time since March 2022, the highest point in 22 years.
Employment growth continues to show promising signs, with the creation of 209,000 new jobs in June and a dip in the unemployment rate to 3.6%. This level, close to the lowest in the past 50 years, mirrors the figure when the Fed initiated rate hikes 16 months ago. It's a testament to an economic robustness that was virtually unpredicted.
