Fed Rates

Fed Signals Rates Will Stay Higher for Longer

Fed projections suggest the terminal federal funds rate will reach 5.6% by the end of 2023, implying at least one more 25 basis-point rate increase this year. A basis point is one-hundredth of one percentage point.

Changes to the federal funds rate can indirectly influence mortgage rates. Yet, housing market experts are less concerned about one more interest rate hike this year than what the Fed has in store for rates in the coming years.

“Right now, it’s more about what the Fed intends to do rather than what it does,” says Keith Gumbinger, vice president at mortgage website HSH.com. “[W]hile not meaningless, another quarter-point hike at this point won’t change the big picture much, as a lot of the ‘damage’ from higher interest rates is either done or is already in process.”

Gumbinger says what matters most is how long policymakers plan to keep rates elevated and when they’ll begin implementing rate cuts.

Fed policymakers signaled at their September meeting that interest rates could stay “higher-for-longer,” adjusting policy rates a half a point higher for the end of 2024 and 2025 in their latest projections.

Consequently, many housing market experts forecast mortgage rates remaining elevated for the remainder of this year—and possibly into 2024.