Mortgage RatesThe Impact of the Fed’s Latest Hike on Mortgage Interest Rates

The Impact of the Fed’s Latest Hike on Mortgage Interest Rates

On Wednesday, the Federal Reserve raised interest rates by 75 basis points to a range of 2.25% to 2.5%. The range was previously 1.5% to 1.75% before the Fed announced the latest increase and was only 0% to 0.25% until the Fed began a series of rate increases in March, May, and June. 

The Federal Reserve’s hike applies to overnight interest rates, or the interest that banks charge one another for overnight loans. The Fed raised interest rates by 75 basis points in back-to-back months, as there was also an equivalent 75 basis hike in June. There hasn’t been such a quick rate acceleration since the 1980s, making the latest Fed move historic. 

When Fed Chair Jerome Powell announced the latest rate hike in a press conference, he said that the United States isn’t in a recession and that his latest decision wouldn’t move the U.S. towards one. The Chairman cited strong employment growth — Burea of Labor Statistics (BLS) data shows that the U.S. has added at least 368,000 jobs per month in 2022.  

The Federal Reserve, in an official statement, also defended its latest rate hike “Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low.” They also mentioned that high inflation is evidence of “supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”

However, many experts in the private sector aren’t quite as optimistic about the state of the economy. “Whether the economy can smoothly transition from allegro to adagio is very much in doubt and depends both on the current state of the economy and how the Fed conducts policy from here,” David Kelly, chief global strategist at JPMorgan Asset Management, told CNN

The Impacts of the Fed’s Move on Mortgage Interest Rates

The Federal Reserve’s rate and mortgage interest rates are correlated to a large extent, but there is no evidence that mortgage interest rates will increase based on the latest news from the Fed. While that may not make sense to the casual observer, Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), has a simple explanation. 

“The long-term bond market, off of which mortgage rates are generally priced, has mostly priced-in all future actions by the Fed and may have already peaked with the 10-year Treasury shooting up to 3.5% in mid-June,” said Yun

Yun also said that mortgage interest rates “may be topping or very close to a cyclical high in July” and that “it is possible that the 30-year fixed mortgage rate may settle down at 5.5% to 6% for the remainder of the year.

As of July 28th, interest rates on a 30-year fixed-rate mortgage sit at a national average of 5.30%, according to Freddie Mac.

Tyler Williams

Tyler graduated from Virginia Commonwealth University in 2017 with a Bachelor's degree in Urban and Regional Studies. Currently based in Los Angeles, he works as a freelance content writer and copywriter for companies in real estate, property management, and similar industries. Tyler's main professional passion is writing about critical issues affecting big and small cities alike, including housing affordability, homelessness, inequality, and transportation. When he isn't working, he usually plans his next road trip or explores new neighborhoods and hiking trails.