The Federal Reserve announced a 25‑basis‑point increase to the federal funds rate, the first hike since July 2023. While the Fed’s move targets inflation, it also sent mortgage rates higher, with the average 30‑year fixed‑rate climbing to 6.97% APR in the week ending Sept. 16, according to data supplied to NerdWallet by Zillow.
Why rates rose ahead of the Fed’s decision
Late‑last week, new inflation data sparked the jump. August’s Producer Price Index showed rising fuel costs were lifting wholesale prices, and the August Consumer Price Index’s core figure came in 10 basis points above expectations, at 0.3% month‑over‑month. That modest miss helped push bond yields higher, and because mortgage rates are closely tied to the yield on the 10‑year Treasury, lenders adjusted their pricing accordingly.
How the Fed’s action could affect future rates
Paradoxically, the Fed’s rate hike may eventually ease pressure on mortgage rates. Higher bond yields have been the primary driver of mortgage rate increases this year, and by taking steps to combat inflation, the Fed could slow the upward momentum in yields. However, a rapid decline in mortgage rates is not guaranteed; the market will continue to respond to inflation trends, oil prices, and broader economic conditions.
What borrowers should consider
For homeowners hoping to refinance, the current environment suggests patience. A refinance typically makes sense only if it saves at least half a percentage point compared with the existing loan. With rates near 7%, few borrowers will meet that threshold.
Prospective homebuyers can still move forward if they find a property they can afford at today’s rates, but they should avoid over‑extending their budget in hopes of a quick rate drop. Comparing quotes from multiple lenders remains essential to securing the best possible terms.
Bottom line
Mortgage rates have surged to near‑7% following the Fed’s latest rate hike, driven by recent inflation data and rising bond yields. While the Fed’s action may eventually temper rate growth, borrowers should not expect a significant decline in the near term. Careful budgeting and diligent lender shopping are the best strategies for navigating today’s market.
Original reporting: KTBS 3 (Shreveport) — read the source article.
