What happened: Today the Federal Reserve opted to raise the target for the federal funds rate to the 5.25%-5.5% range, the highest level since 2001.

The Federal Open Market Committee (FOMC) is still concerned with stubbornly high core inflation. In his statement, Fed Chair Powell left the door open for future rate increases suggesting the committee will assess new data on a meeting-by-meeting basis to determine whether future policy firming is necessary.

Senior Economist Orphe Divounguy’s thoughts on the impact to mortgage rates and housing: 

The latest Fed rate hike was mostly anticipated, limiting its immediate impact on other interest rates, including mortgage rates. As usual, investors shifted their focus to Chair Powell’s press conference, where he expressed concerns that inflation remains high and stated that further policy firming will be based on incoming economic data. As a result, mortgage rates are likely to remain elevated until more evidence is available suggesting core inflation will continue to moderate.

Considering that, the path forward for mortgage rates is still unclear, and will depend on future economic activity and inflation data.

Higher rates and tighter credit conditions have slowed home building and cooled home sales volume in the past year. High rates are also crimping the supply of new listings, as many current homeowners have little incentive to give up their existing, low-interest loans. Cooling inflation and lower mortgage rates would put wind in the sails of both housing supply and demand. 

Lower rates would also support builders, who have stepped up in a big way to fill the gap in inventory. New home sales are up 24% from last year, and builders are pivoting to produce more economical smaller homes that are increasingly being built or started off site. 

Core PCE inflation readings on Friday and wage growth numbers that come out next week will likely lead to large mortgage rate swings.