Fed Rate Hike Might Be What Mortgage Rates Need
The Federal Reserve raised interest rates by another quarter-point on September 16, which might seem like bad news for homebuyers. However, this move could have an unexpected positive effect on mortgage rates.
At first glance, the increase in interest rates from 3.75% to 4% may seem concerning, especially considering that mortgage rates are already above 7%. But it's essential to understand how the Fed's actions affect mortgage rates.
The Fed does not directly set 30-year mortgage rates; instead, its benchmark federal funds rate influences the bond market and longer-term interest-rate expectations. The issue is not just about whether the Fed raises or lowers rates but whether investors believe the central bank is serious about controlling inflation.
Energy prices are currently a significant concern, with gasoline prices above $4 per gallon in Metro Atlanta. This can impact various industries and lead to higher costs for consumers. Persistent inflation is detrimental to the bond market, making it more challenging for mortgage rates to rise.
Despite the initial impression that the Fed's hike would hurt mortgage rates, some experts suggest that it could ultimately help if investors become convinced that inflation will be brought under control. The average top-tier 30-year fixed mortgage finished Wednesday around 7.24%, according to Mortgage News Daily.