Experts say upcoming Fed meetings could affect mortgage rates. Getty Images/iStockphoto
The latest inflation numbers suggest that the economy is finally slowing, and if upcoming inflation reports continue to trend downwards, the Federal Reserve may consider cutting the federal funds rate.
The Fed has kept this rate high through 2024, which is a big factor in keeping mortgage rates, and other financial interest rates, high as well. But will the Fed consider changing this rate when it meets in July, and if it does, how will it affect mortgage rates?
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Will mortgage rates fall after the Fed meets in July? Here's what experts predict
Here's what experts think about the likelihood of interest rates falling after the Fed meets in July.
No, interest rates will not fall
Experts are pretty much in agreement that the Federal Reserve won't cut interest rates when it meets in July, which means mortgage rates probably won't fall either.
“Our sense is the Fed won't be ready to act and cut rates at its July meeting,” said Steve Wyett, chief investment strategist at BOK Financial. “Comments from Fed governors, particularly Chairman Powell, suggest the Fed is playing the long game when it comes to inflation.”
The latest Consumer Price Index (what many refer to as “inflation”) came in at 3.3% last month, down slightly from the previous month, but still well short of the Fed's 2% target.
“Inflation is falling, but not low enough to convince the Fed that it needs to cut rates,” said Michael Collins, founder of WinCap Financial Inc. “The U.S. economy continues to perform well despite many believing a recession is coming, which is why they are keeping rates steady.”
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Yes, interest rates will fall (but not in July)
A rate cut is still possible this year, and the Fed has hinted at one in its latest forecast, but experts believe it won't come until later this year.
“There isn't enough data to suggest that inflation has subsided during this tightening cycle,” said Afifa Sabri, capital markets analyst at Veterans United Home Loan. “Even if inflation continues to subside, two months of data will not be enough for the Fed to make the decision to cut rates. The Fed will likely hold off on rate cuts as long as it can without hurting the employment picture.”
CME Group's Fed Watch tool indicates that interest rates could be cut in September, which could also mean lower mortgage rates. Unfortunately, experts say the reduction in mortgage rates is likely to be minimal.
“Although mortgage rates have come down significantly from their all-time highs of last fall, they're likely to remain high for some time,” said David Bieri, an associate professor of economics and real estate at Virginia Tech. “Rate uncertainty remains above normal and prepayment risks are much higher than they were before the pandemic, making it unlikely rates will fall another 0.25 to 0.5 percentage points.”
In their latest forecasts, Fannie Mae and the Mortgage Bankers Association predict that interest rates on 30-year mortgages will be 6.6% by the end of the year, slightly lower than the current average.
Conclusion
No formal rate cut is needed to lower mortgage rates, which fell slightly in June but have since risen, according to Freddie Mac.
“Mortgage rates have been much more responsive to economic data than Fed meetings because members communicate consistently and frequently about the direction of policy, and as a result there are no surprises in their decisions,” Sabri said. “If the Fed finds inflation subdued at its meeting and signals a rate cut in the fall, we may see further improvement.”
To get a lower mortgage rate when you apply for a loan, work to improve your credit score and pay off your debt. Making a larger down payment can also help lower your interest rate.