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After keeping rates paused since last summer, all eyes will turn to the Federal Reserve this week as they meet for the first time in 2024. On the agenda will be the future of the benchmark interest rate range, which currently sits between 5.25% and 5.50% —the highest it’s been in decades.
The Fed had been consistently raising that rate to help tame inflation, but inflation has cooled in recent months and rates were unchanged. But after a report for December showed inflation rising to 3.4%— still above the Fed’s target 2% goal — it’s clear that more work needs to be done.
This work is especially important for homebuyers and owners looking to refinance, both of whom have been coping with the highest average mortgage rates since 2000. As inflation has cooled and anticipation has surged that rates would be cut, mortgage rates have fallen in recent weeks. But will they fall further after this week’s meeting? That’s what we explore below.
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Will mortgage rates fall after this week’s Fed meeting?
Here are three possible scenarios for this week’s Fed meeting and how it could influence mortgage rates.
Rates will remain paused — and mortgage rates won’t move much
Mortgage rates fell in December and parts of January in anticipation of Fed rate cuts to come in 2024. And while those still may come at some point, the pace of how quickly they come may have slowed a bit with the recent inflation news. So if the Fed decides to keep the benchmark rate as is this week, mortgage rates will likely stay where they are, or move slightly up or down.
Just don’t expect major activity in either direction. But the cut that many were hoping for in 2024, albeit later in the year, is unlikely to come this week, meaning that the current rates may be the best homebuyers can secure right now.
Learn more about your current mortgage rate options here.
Rates will rise — and mortgage rates will follow
While not likely to happen this week this scenario has taken on new significance in recent weeks and is more possible than many were hoping for as 2023 came to a close. If rates rise — or even if the Fed hints that they’re not done raising rates — then mortgage interest rates will quickly follow the upward trend.
Again, this isn’t likely to happen now, but the economy is still volatile in parts, and this possibility can’t be totally dismissed, either.
Rates will fall — and mortgage rates will fall, too
This is the least likely scenario for this week, but the one many are hoping for, regardless of some indicators. If the Fed cuts its interest rate range, even by 25 basis points, it will indicate confidence in the economy that has been lacking in recent months. By doing so, they’ll likely spark a reduction in mortgage rates across lenders.
And considering that mortgage rates fell in recent months in anticipation of a cut, they’re almost sure to fall significantly if the Fed moves and finally cuts rates. Just don’t expect it to be at this meeting.
See how low of a mortgage rate you could secure here.
The bottom line
No one knows for sure what the Fed will do this week but homebuyers and owners looking to refinance should pay close attention to their announcements. A rate cut is ideal but even a continued pause could provide some breathing room to complete or pursue transactions. A rate increase, however unlikely to occur, would be problematic for many and could make today’s “high” rates, tomorrow’s “low” ones. That’s why it makes sense to closely monitor the market and to prepare to act aggressively when an opportunity arises.
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
