After rising steadily for the past week, mortgage rates fell back to lower levels after the Federal Open Market Committee (FOMC) adjourned their meeting.
Rates dropped after the Fed decided to maintain their current rate, meaning they’ve decided to push back a rate hike until a later time.
The Fed’s rate will now remain at the target range of ¼ to ½ a percent, the same level it’s been at since the Fed raised rates at the end of 2015.
The Fed’s decision to keep their rate the same doesn’t come as a surprise. Wall Street expected the rate to remain the same at this meeting, largely because of next week’s Presidential Election.
It seems likely that the Fed wants to see how the economy responds to whoever is elected president before they raise rates.
However, the Fed is expected to raise rates at their next meeting in December. They have previously stated that they plan on raising rates at least once in 2016, and next month’s meeting will be their last opportunity.
According to the Federal Reserve, most economic factors are showing signs of growth and strength. While they would like to see a slightly higher inflation rate, their press release shows that they are optimistic that inflation will meet their standards in the near future.
For mortgage rate shoppers, this meeting could represent the end of low rates. Barring a major economic setback, the Fed is almost guaranteed to increase rates in December. This would almost certainly mean higher mortgage rates as well.
Fortunately, the Fed’s decision to not raise rates at this meeting has pushed rates lower. Mortgage rate shoppers could still get ultra-low rates before the end of the year.
Rate Hike Coming
The FOMC meets about every six weeks to conduct monetary policy. Their role in the economy is to make sure that inflation and unemployment rates are at healthy levels.
One of their tools to help control inflation and unemployment is the federal funds rate. This rate is used as a benchmark for interest rates across the country. Whenever the federal funds rate changes, mortgage rates tend to react. A higher federal funds rate would mean higher mortgage rates.
Because of this, low mortgage rates could be coming to an end next December. Mortgage rates have been near historically low levels since spring, but they can’t stay low forever.
The FOMC has been planning on raising rates at some point, and they’ve hinted over the past few months that they’re planning on increasing the federal funds rate in December.
However, some members believe the economy is healthy enough to increase rates right now. Of the ten voting members, two voted to increase the federal funds rate to a target range of ½ to ¾ percent.
Aside from inflation rates, the economy is exactly where the Federal Reserve wants to see it. The current unemployment rate is at a healthy level, and the Fed also stated that job gains have been “solid.”
The Fed went on in their statement to say that “with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate.” This shows that the Fed is just about ready to increase their rate.
Rates Low For Now
Mortgage rates were dropping prior to the Fed’s announcement, and they have held low since then. But mortgage rates can change throughout the day, and they change every single day. They could begin to increase prior to the Fed’s next meeting.
The most likely scenario is that mortgage rates will hold low until the Presidential Election is over. Investors want to see who is going to become president, so they’ll probably stick with “safer” investment options.
Mortgage rates are closely tied to “safer” investment options, so there’s a chance that mortgage rates could drop even lower over the next week.
Once the Presidential Election is over and the dust has settled, the economy should jump right back into full swing. This could mean higher mortgage rates.
Those looking to purchase a home or refinance may want to lock in on rates soon. Rates may not be this low again for a while, and it’s hard to see them getting any lower than they currently are.
Many home buyers may also want to try and lock in on a mortgage prior to the holidays. Mortgages can take up to 45-60 days to close, so the sooner a mortgage application is made, the sooner the home could be yours.
Rates have been falling throughout the day, and they’ll continue to change each day until the next Fed meeting. Those looking to take advantage of ultra-low rates may want to consider locking in on current rates.