The Federal funds rate hiked in March, and again in early May and June 2022 — which was, at the time, the largest Fed rate hike since 1994. And recently, funds rate hiked another 0.75%. Making it the 4th rate hike this year and the Fed also projects hiking another 1.75% over the three meetings that remain this year.
While the fed funds rate most directly impacts what banks charge each other for short-term loans, it feeds into a multitude of consumer products such as adjustable mortgages loans and credit cards. The increase takes the funds rate to its highest level since December 2018.
Remember the Federal Funds rate is the overnight borrowing rate for banks, and it is not the same as mortgage rates.
You may be wondering: How does this move in the Federal Funds rate affect mortgage rates and the housing market?
Mortgage rates are primarily driven by inflation, which is at a 41-year high. When the Fed hikes the Federal Funds rate, they are trying to slow the economy and curb inflation.
Just one day after the Federal Reserve raised its benchmark rate, mortgage rates took a sharp turn lower. The average rate on the popular 30-year fixed mortgage fell to 5.22% on Thursday from 5.54% on Wednesday, when the Fed announced its latest rate hike, according to Mortgage News Daily. The rate fell even further Friday to 5.13%. (Originally published on www.cnbc.com)
Rates hadn’t moved much in the days leading up to the Fed meeting earlier this week, but they had been slowly coming off their most recent high in mid-June, when the 30-year fixed briefly crossed 6%. If the Fed is successful in cooling inflation, mortgage rates should decline. History proves this during rate hike cycles for the past 50 years.
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