The Fed raised rates a quarter point this week — its first hike since 2023 — bringing the federal funds rate to a range of 3.75%–4.00%, with officials signaling at least one more increase before year-end.
Rates likely stay elevated — I don’t see mortgage rates falling soon.
Mortgage rates track the 10-year Treasury yield more than the Fed’s rate. That 10-year is sitting near 5%, close to its highest level since 2007, and it’s been climbing even as the Fed hikes. To me, that says the bond market isn’t yet convinced inflation is beaten — and one quarter-point move doesn’t undo five years of above-target inflation.
Here’s what brings rates down: credibility, not the Fed’s next hike.
When investors believe inflation is genuinely headed back toward 2%, the 10-year falls, and mortgage rates follow it lower. Chair Warsh hasn’t earned that trust from the market yet. When he does, that’s the turn worth watching.
Why the Fed hiked — and what they’re forecasting.
The short answer: prices are still rising faster than the Fed wants, and the economy is strong enough to take a hike. A few everyday forces are behind it:
- Energy costs. Conflict in the Middle East has kept oil and gas prices elevated, and that ripples into almost everything — shipping, groceries, travel. It’s been one of the biggest drivers of hotter inflation this year.
- Steady jobs and spending. The labor market is holding up and people are still spending. That’s good news, but strong demand also keeps upward pressure on prices, which gives the Fed room to raise rates without fearing it’ll tip the economy over.
- Inflation that just won’t quit. Prices have run above the Fed’s 2% target for years now. Warsh put it plainly: inflation is “too high and has been for too long.
Looking ahead, the Fed expects inflation to stay in the high-3% range this year before easing toward 2% over the next couple of years — and its projections point to one more rate increase in 2026, though that depends on the data that comes in between now and then.
A quick myth to retire. A Fed hike doesn’t automatically push mortgage rates up by the same amount. Markets often price the move in ahead of time, which is why rates sometimes rise after a decision, sometimes fall, and sometimes barely move.
For buyers. No one can time this perfectly, so it’s rarely worth trying. If payment is the concern, there are often ways to build flexibility depending on your situation — temporary buydowns, seller concessions, ARM products, or a plan to refinance if rates improve. Happy to talk through what fits.
The bottom line: rates likely stay choppy until the market trusts that inflation is truly cooling. That’s the signal I’m watching — and I’ll keep you posted.
Sources: CNBC; Federal Reserve.
