What To Expect from This Week’s Fed Meeting and Its Impact on Mortgage Rates

If you’re following the housing market, you’ve probably heard a lot about the Federal Reserve’s (Fed) upcoming decisions and how they may impact mortgage rates. While the Fed doesn’t set mortgage rates directly, its decisions on the Federal Funds Rate can influence them. Here’s what you need to know about this week’s Fed meeting and how it could affect homebuyers and sellers.

Key Factors Influencing the Fed’s Decisions

The Fed considers three main economic indicators to guide its policy decisions: inflation, job growth, and the unemployment rate. Understanding these factors can help you anticipate what might happen next in the housing market.

1. Inflation Trends

Inflation impacts the cost of living, from groceries to fuel. The Fed aims to bring inflation closer to its 2% target, which helps stabilize the economy. Recently, inflation has been moving in the right direction, gradually decreasing over the past two years. This steady trend may encourage the Fed to consider lowering the Federal Funds Rate, making borrowing more affordable and potentially easing mortgage rates in the future.

2. Job Growth Rate

The Fed closely monitors monthly job growth as a sign of economic health. While the economy is still adding jobs, the rate of job creation has slowed, which is what the Fed wants to see. Slower job growth indicates that the economy is cooling without causing a recession. According to Reuters, the recent report showed fewer job additions in October than in any month since December 2020, reinforcing the Fed’s goal of a balanced labor market.

3. Unemployment Rate

The unemployment rate indicates how many people are actively seeking jobs but can’t find one. A low unemployment rate shows that most people who want jobs have them, which is positive but can drive up inflation if it leads to higher spending. Currently, the U.S. unemployment rate stands at 4.1%, indicating a healthy job market that aligns with the Fed’s objectives. A balanced labor market may further support a decision to lower the Federal Funds Rate.

What This Means for Mortgage Rates

The Fed is expected to cut the Federal Funds Rate by a quarter of a percentage point this week, which could indirectly lower mortgage rates. However, any decrease in mortgage rates will likely happen gradually over the coming months rather than immediately. Experts forecast a slow decline in mortgage rates as long as inflation remains controlled and job growth stabilizes.

Mortgage rates could also experience volatility, influenced by factors like labor market performance, the upcoming presidential election, and potential inflationary pressures. Ralph McLaughlin, Senior Economist at Realtor.com, explains:

“The trajectory of rates over the coming months will be largely dependent on three key factors: (1) the performance of the labor market, (2) the outcome of the presidential election, and (3) any possible reemergence of inflationary pressure. While volatility has been the theme of mortgage rates over the past several months, we expect stability to reemerge towards the end of November and into early December.”

Bottom Line

Although the Fed’s actions influence mortgage rates, other economic factors ultimately drive rate changes. As we progress through 2024 and into 2025, we may see mortgage rates stabilize or decline gradually, providing more stability for buyers and sellers. By understanding the Fed’s approach to inflation, job growth, and unemployment, you can better anticipate changes in the housing market and make informed decisions about your real estate plans.