Fed Holds Rates Steady, But Mortgage Rates Likely to Keep Climbing

• July 30th

by UrbanTurf Staff

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The Federal Reserve left its benchmark interest rate unchanged on Wednesday, maintaining the federal funds rate at a target range of 3.5% to 3.75% for the fifth consecutive meeting. So, how will this move affect mortgage rates?

The Fed doesn't set mortgage rates directly, but its decisions still ripple through the housing market. Mortgage rates track the 10-year Treasury yield far more closely than they track the federal funds rate, since lenders price home loans based on what investors expect to earn holding long-term bonds. This week, the 10-year Treasury yield jumped five basis points immediately following Wednesday's announcement, with the 30-year Treasury climbing more than nine basis points to 5.193%. It's this bond market reaction — not the Fed's rate hold itself — that's likely to push mortgage rates higher in the days ahead. 

That upward pressure is being driven largely by markets pricing in the odds of a hike at the Fed's September meeting, though those odds remain in flux. Some estimates have put the probability as high as 68%, while others suggest it's closer to a coin flip after Chair Kevin Warsh signaled that markets already anticipating a hike may be doing some of the Fed's restraining work for it. Unrest in the Middle East and the resulting rise in oil prices add another layer of uncertainty, with several economists warning that developments in that conflict could meaningfully sway the rate path from here.

For now, buyers and sellers in the DC-area market should expect mortgage rates to stay in the high-6% range rather than ease significantly, with the next major catalyst likely to come from inflation and jobs data ahead of the Fed's next meeting. Fannie Mae's most recent housing forecast projects 30-year fixed rates averaging 6.4% through the rest of 2026, with a modest dip to 6.3% expected in 2027.

This article originally published at https://dc.urbanturf.com/articles/blog/fed_holds_rates_steady_but_mortgage_rates_likely_to_keep_climbing/24868.