Federal Reserve Rate Rise Coming ‘Soon,’ Committee Says

The Federal Reserve is expected to take quick action soon to curb inflation, which includes dialing back on policies that affect mortgage rates, too.

The Federal Open Markets Committee recently said that due to inflation rising well above 2 percent and a strong labor market, it soon will be necessary to raise the target range for the federal funds rate.

While this news has been circulating for months, and an exact timetable has yet to be revealed, the statement falls in line with expert predictions that the first rate hike will come in March.

Real estate market experts say the mortgage rate increases this year depend heavily on what the Fed does, but not because of the funds rate.

Instead, experts say the Fed will impact mortgage rates more by pulling back the economic support brought on by the pandemic, which included purchasing billions of dollars in mortgage bonds every month.

In their statement, the FOMC said these purchases will end in early March.

Fed Chair Jerome Powell recently said they are looking for guidance on whether to not repurchase new mortgage-backed securities as their current ones mature, or whether to sell some of their holdings.

Regardless, market experts say the Fed’s decision to end the bond purchases will have a strong impact on mortgages.

Due to rising inflation, and in anticipation of the Fed’s actions, mortgage rates steadily increased throughout January, even reaching pre-pandemic rates.

Experts are mixed on where rates will land in February, with predictions for 30-year fixed rates averaging anywhere from 3.5 percent to 3.85 percent, and 15-year hovering around 2.8 percent to 3 percent.

Many experts are still in agreement that rates will reach at least 4 percent by the end of the year, although some believe it will happen sooner rather than later.

Demand for housing remains high, even as rates rise. Experts say that while the window of opportunity for some borrowers has closed for now, there are still options for others.

It all depends on a borrower’s personal financial situation, including their debt, credit score, and ability to pay a sufficient down payment, mortgage experts say.

Experts continue to point out that while rates are rising, they still may be in a favorable range for some borrowers. Historically speaking, today’s rates are relatively low.

The bigger challenge for buyers, experts say, is competing in a seller’s market with a sustained lack of inventory.They advise borrowers to proceed with caution as they make their decisions on both purchasing and refinancing, and to consult with a trusted loan officer to help determine what they can afford.