Central bank decisionmakers expect to raise rates again between now and the end of the year, but won’t say when
Federal Reserve decisionmakers expect to hike interest rates between now and the end of the year as inflation concerns continue to mount, according to minutes of the latest Federal Open Market Committee (FOMC) meeting.
That could mean a rate increase as early as this month – but the summary of its last decision gave no indication of whether officials see a hike in October or next time around on December 9.
The news arrives with financial market expectations of a rate increase by the central bank surging. Bond yields have spiked in recent weeks, putting upward pressure on 30-year fixed mortgage rates (which closely follow the path of 10-year Treasuries).
Still, a hike is by no means a surefire thing. A summary of the minutes, released Wednesday, showed decisionmakers are still closely watching economic developments as they weigh their next moves.
Participants “emphasized… that they approached each meeting with an open mind and decisions at future meetings would depend on incoming information and its implications for the outlook and the balance of risks,” the document said.
At its last meeting, the Fed hiked rates by 25 basis points, the first time in over three years it’s moved rates higher. That was a unanimous decision, surprising some observers who had noted growing division at the central bank in its prior announcements.
That quarter-point September hike, the document said, was viewed by Committee members as “prudent on risk-management grounds, providing insurance against inflation remaining persistently above target due to stronger-than-expected demand or further adverse supply shocks.”
What it would mean for mortgages
Mortgage rates don’t move directly in tandem with the Fed’s decisions, and a rate increase by the central bank doesn’t necessarily mean higher mortgage rates are also on the way.
But the bond market tends to price in its expectations for Fed rate hikes in advance, meaning traders generally bake possible rate moves into their own projections in the days and weeks before a Fed decision is due.
Prominent mortgage industry members have highlighted the possibility that a hawkish approach by Fed chair Kevin Warsh – who’s taken a stern line on inflation since taking the reins at the central bank this year – could soothe markets in the long run and potentially move bond yields lower.
Still, while FOMC members expect one more hike in the closing months of this year, the group doesn’t see any 2027 increases in the cards just yet.
Much will depend on the inflation outlook – but that remains choppy, with the consumer price index (CPI) consistently running above the Fed’s target and climbing in recent times due to soaring oil prices.
For now, Fed officials are taking a cautious approach as they look to the months ahead. Policymakers, according to vice-chair of the Fed’s board of governors Philip Jefferson, “will need to come to our own judgment, which may take more time.”
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