Will mortgage rates go up after the March Fed meeting?
Are mortgage rates supposed to increase?
Lenders and borrowers should pay close attention to the upcoming Federal Reserve meeting on March 15-16.
As inflation hits 40-year highs, the FOMC announced at its January meeting that it would raise rates and finalize its MBS cut by early March. The average 30-year fixed interest rate jumped 37 basis points in the four weeks following that announcement, according to Freddie Mac.
But since then, war has broken out in Europe with Russia’s invasion of Ukraine, causing uncertainty in global markets and a “flight to safety” among investors. This caused mortgage rates to fall for two consecutive weeks.
While most experts predict mortgage rate growth throughout 2022, the decisions made at this upcoming FOMC meeting will greatly influence where and how quickly they go, especially in the near term.
Higher rates are likely to come
The Fed made it clear at its last meeting that it would adjust its policies to account for inflation and economic expansion in the United States. However, the uncertainty created by the Ukraine crisis will likely temper central bank action, and subsequently mortgage rate growth.
“The President has signaled that the Fed will raise the fed funds rate by a quarter point. Prior to Russia’s invasion of Ukraine, the futures market was valuing a half point for March,” Mark said. Palim, Deputy Chief Economist and Vice Chairman of Fannie Mae.
“I think the main thing investors are going to watch is what happens to the price of oil. Rising gas prices are slowing down the economy but also contributing to inflation. So it’s a double-edged sword. for the Fed. Big increases in oil prices mean you really shouldn’t raise interest rates. It all depends on how long the war in Ukraine lasts,” Palim continued.
Hopefully the FOMC’s March meeting sheds some light on the multiple factors weighing on its decision-making and how much we should expect mortgage rates to rise this year.
The Fed Effect
It is important to remember that technically the Federal Reserve does not set mortgage rates. Instead, rates are indirectly but intrinsically tied to Fed actions.
Assuming the central bank stays on course to wrap up its MBS cut this month, it will put upward pressure on interest rates. When there is less money spent on buying MBS, yields go up and mortgage rates generally follow suit.
A rise in the federal funds rate — the amount banks pay to borrow money from each other overnight — signals higher inflation and economic expansion, and also drives up interest rates. .
If the rise in fed funds is, in fact, lower than expected from January, interest rates should still rise less aggressively.
Advice to borrowers
After significant growth at the start of 2022, mortgage rates have fallen for two consecutive weeks since the start of the war in Ukraine and have sown uncertainty in global financial markets. This is obviously a sad and fluid situation, and its impact on US interest rates will depend on how long it lasts.
The average mortgage rate will likely rise if the Fed announces upcoming rate hikes, even if they are reduced from previous projections.
Conclusion: There is perhaps never a better time to lock in a mortgage or refinance than right now and rates are still historically low. Speak to a lender or mortgage professional to find out what type of loan and rate you qualify for.
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