Mortgage Rates Could Stay Volatile Ahead of This Week’s Fed Meeting

Markets are uncertain ahead of Warsh’s second FOMC meeting

The week’s main event is the Federal Open Market Committee meeting that concludes Wednesday, Kevin Warsh’s second as Fed chair. Futures markets are pricing in roughly a one-in-three chance of a rate hike. That unusually wide split shows how little confidence investors have about whether the committee will raise rates or leave them unchanged.

Since the global financial crisis, the Fed has generally tried to signal major policy moves before its meetings so markets are not caught off guard. In June 2022, for example, expectations were reset shortly before the meeting when officials were preparing to raise rates more than investors had anticipated. Warsh, however, has indicated that he is more comfortable with surprise and more visible disagreement inside the committee, making this meeting more difficult to forecast.

Even so, June employment and inflation data were milder than expected, making an actual hike difficult to justify in Redfin’s view. The committee is more likely to hold rates steady, although one or more members may dissent in favor of a hike. That would postpone, rather than settle, the debate ahead of the September meeting.

.

GDP and core PCE arrive the day after the Fed decision

The market will have little time to digest Wednesday’s decision. Second-quarter GDP and the June core Personal Consumption Expenditures price index are due Thursday. Economists expect growth to improve from the first quarter while core PCE inflation eases slightly.

Even if the Fed’s decision matches expectations, the next day’s growth and inflation data could quickly change the bond market’s view. Mortgage rates may therefore react first to the FOMC statement and press conference, and then again when the GDP and PCE reports are released.

.

Oil is no longer the only force putting pressure on rates

Geopolitical risk returned to the center of the market last week as energy prices rose and investors lost confidence in the prospects for a quick peace agreement with Iran. A few months ago, the mortgage-rate story was closely tied to oil shipments through the Strait of Hormuz. Today, oil is only one part of the picture.

A stronger-than-expected economy, partly supported by AI investment, and a Fed that appears increasingly impatient with inflation are also keeping upward pressure on yields. The White House announced several new tariffs, including a 50% rate on some Canadian exports. Most were expected or replaced expiring measures, so they did not materially change the average effective tariff rate.

Initial jobless claims also fell to their lowest level since 1969. Methodological factors mean the figure may contain considerable noise, but it is broadly consistent with other evidence pointing to a labor market and economy that are stronger than forecasters expected.

.

A Fed hold would not guarantee stable mortgage rates

The FOMC sets a target range for the federal funds rate, an overnight rate between banks. Mortgage rates are long-term rates influenced by Treasury yields, demand for mortgage-backed securities, and expectations for future inflation and economic growth. A decision to hold the policy rate steady can therefore coincide with higher mortgage rates if bond investors become more concerned about inflation.

In a week with several market-moving events, borrowers may find it more useful to check how long a quote remains valid and review rate-lock terms than to focus on a single headline rate. The actual rate, payment and closing costs will vary by credit score, loan-to-value ratio, loan program, points and other borrower details.

.