What the Fed’s July meeting means for your wallet — and mortgage
The Fed is poised to raise rates
The Fed has been aggressively trying to fight inflation — but largely to no avail.
The bank’s Federal Open Market Committee (FOMC) voted for its biggest rate hike in almost 30 years last month, only to see inflation soar to 9.1% — its highest point since 1981.
With those kinds of numbers, it’s almost certain the Fed will raise rates yet again at its July 26 and 27 FOMC meeting later this month. But just how high could they go, and what will it mean for mortgage rates? Let’s dig in.
Click here for today’s VA mortgage rates (Dec 21st, 2024)
This rate hike could be even bigger
The Fed is going to increase its benchmark interest rate this month; that’s basically a given. The exact increase, though, is less certain.
Most experts agree it will at least match the 75-basis-point hike the FOMC voted for in June. But according to the CME FedWatch Tool, there’s a 31% chance it’s even higher — a full 1-percentage-point increase instead.
Those probabilities have increased in recent weeks, too. At the start of the month, there was just a 7% shot at a hike that large. Now, that chance has more than tripled.
Last week, Federal Reserve Governor Christopher Waller confirmed as much at an event in Victor, Idaho.
“I support another 75 basis point increase,” Waller said. “However, my base case for July depends on incoming data. If I see the incoming data the next two weeks coming in and showing me that demand is still really strong and robust, then I’m going to lean into a higher rate hike.”
Prepare for higher mortgage rates
So, the Fed is probably raising its benchmark — and possibly by quite a bit. Does that mean mortgage rates will rise a lot, too?
Maybe, but not necessarily.
The FOMC doesn’t set long-term mortgage rates, but short-term rates — like those on adjustable-rate mortgages and home equity lines of credit — are tied to the Fed’s benchmark rate. So when the Fed rate increases, so do rates on ARMs and HELOCs.
Long-term rates — the ones you see on 15- and 30-year mortgages, for example — are less directly impacted by the Fed’s actions, though they do tend to follow the same trendlines. Case in point: since the bank started increasing its benchmark back in March, the average rate on 30-year, fixed-rate mortgages has gone from 3.85% to 5.51%.
What to know about rate increases
The biggest spikes tend to happen the week of the Fed meeting, as investors price in the expected rate hike. With this in mind, we’ll likely see rates make a notable jump in the last week of July. So if you’re eyeing a home purchase or refinance? Try to lock in your rate before this point.
Additionally, if you have an ARM — particularly one that’s set to reset soon — it might be time to consider refinancing into a fixed-rate mortgage. This will protect you from any rate increases that might occur due to the Fed’s actions.
Click here for today’s VA mortgage rates (Dec 21st, 2024)
