Table of Contents
Key Takeaways
- Fed may give fewer rate hints.
- Mortgage rates could become more volatile.
- Past Fed guidance sometimes backfired.
- Homebuyers should focus on finances, not timing rates.
Wondering the future of mortgage rates? And so is the Federal Reserve! One of the highest-ranking Fed officials has just argued in favor of remaining silent regarding future interest rate actions and it may stir up the mortgage market.
A Fed Official Wants Fewer Hints
Fed Gov. Chris Waller indicates that he is doubtful of the Fed announcing its rate intentions. He expressed his ideas at a Bank of Italy conference on July 6.
The Federal Open Market Committee (FOMC) occasionally gives clues to what it is about to do in months to come. But that, Waller says, challenges people to attempt to time the market.
He agrees with new Fed Chair Kevin Warsh, who is more of a quietist.
Waller stated that forward guidance is more an art than a science and that there are instances when it has been counterproductive to policymaking, contrary to its intended purpose.
Why This Matters for Your Mortgage
The linkage is as follows: mortgage rates tend to fluctuate depending on the anticipated actions by the Fed given the direction that the markets are taking. Hushpuppies A more subdued Fed would lead to greater uncertainty and volatility in mortgage rates.
Right now, the numbers look like this:
- 30-year fixed rate: 6.43% (per Freddie Mac)
- End of February: 5.98%
- Federal funds rate: 3.50%–3.75% (unchanged since December)
Warsh was appointed the chair by President Donald Trump who campaigned on reducing mortgage rates. But Warsh prefers lower rates as well, but the FOMC as a group has remained wary.
Lessons From Recent History
Waller pointed to two examples where guidance backfired:
- Late 2021: The Fed hinted it might tighten policy soon. The two-year Treasury yield jumped nearly 200 basis points, speeding up the usual 12- to 24-month lag by about six months.
- September 2020: The Fed promised to hold off on rate hikes until conditions improved. When inflation surged, that promise “tied the hands of the FOMC in 2021 and unnecessarily delayed rate increases.”
The Fed has been left with an unstable economy and its members are divided on the issue of high inflation and concerns about the rapid-moving events such as the Iran conflict.
What Should Homebuyers Do?
Great news: you don’t need to predict the Fed! Leading housing economists say timing rates is a losing game.
“The risks from trying to time interest rate movements far outweigh the rewards.”
Instead, focus on what YOU can control. Here’s your action checklist:
Improve your credit score- Save more to hit key down payment thresholds like 10% or 20%
- Shop around across different lenders for the best offer
Improve your credit score
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