Federal Reserve Chair Kevin Warsh on Friday signaled that interest rates may need to rise further as inflation remains well above the Fed’s 2% target.
Economists interpreted his remarks as a clear indication that the Federal Reserve could raise the federal funds rate, which influences borrowing costs throughout the economy. However, an increase would not necessarily produce an equally sharp rise in mortgage rates.
First American Chief Economist Mark Fleming said financial markets have already anticipated higher short-term rates. Treasury yields have risen in recent weeks, pushing mortgage rates higher before the Fed has taken action. As a result, some of the effect of a future rate increase may already be reflected in current mortgage pricing.
The average 30-year fixed mortgage rate stood at 6.66%, compared with 6.56% one year earlier.
The takeaway for homebuyers is that mortgage rates could remain elevated or move somewhat higher as the Fed continues fighting inflation. However, because markets have already priced in some expectations of additional rate increases, a future Fed hike may not cause mortgage rates to jump as dramatically as borrowers might expect.
