As Fed Pauses Rate Hikes, Mortgage Rates Could Stabilize

Holding a key interest rate steady for now could relieve upward pressure on mortgage rates.
Kate Wood
By Kate Wood 
Updated
Edited by Mary Makarushka

Some or all of the mortgage lenders featured on our site are advertising partners of NerdWallet, but this does not influence our evaluations, lender star ratings or the order in which lenders are listed on the page. Our opinions are our own. Here is a list of our partners.

MORE LIKE THISMortgages

Home buyers looking for mortgage rates to stabilize or even drop got good news Wednesday, as the Federal Reserve announced a pause in its monthslong campaign of interest rate hikes.

The Fed controls the federal funds rate, a metric that directly affects short-term lending. But holding that key rate steady should filter through to other interest rates, including longer-term ones like mortgage rates. After a turbulent spring, with mortgage rates pingponging up and down as economic crises came and went, the central bankers' pause could provide a bit of relief.

Why the Fed took a break

After determining rising inflation wasn't just a temporary feature of the post-COVID-19 economy, the Fed began raising the federal funds rate in March 2022. The rate of inflation peaked at 9.1% in June 2022, the highest level in decades and substantially above the central bankers' goal of 2%.

Changing the federal funds rate — the interest rate banks charge each other for overnight borrowing — is the Fed's main tool for attempting to control inflation. Making this type of borrowing more costly makes borrowing more expensive across the board, which should slow down overall spending and price increases. But there’s a lag between the action and its desired effects.

David Bieri, an economist and associate professor at the Virginia Tech School of Public and International Affairs, compares raising the funds rate to using the brakes on a car — but with a twist. "The problem with hitting that brake is imagine you're driving a car and you will only find with a certain amount of delay whether the brakes are actually gripping," he explains.

The Fed has been pumping the brakes for months, but it has been hard to tell how much the car's slowing down. Though the consumer price index, which measures the rate of inflation, has decreased to 4%, other economic data has been mixed. This pause buys the Fed a bit more time to evaluate the road ahead before making its next move.

Implications for mortgage rates

In addition to the Fed’s moves, persistent inflation and economic events like several bank failures and lengthy debt ceiling negotiations have contributed to a tumultuous spring for mortgage rates. Though interest rates on 30-year fixed-rate home loans have remained mostly in the 6% range, there has been considerable day-to-day volatility.

"There are too many other factors that are providing negative influence on mortgage rates at the moment that they don't need anyone else's help," says Melissa Cohn, a regional vice president and mortgage banker at William Raveis Mortgage based in New York City.

In the near term, mortgage rates could pause alongside the Fed, or even drop slightly, given the lack of immediate upward pressure. The longer-term outlook depends considerably on how long the central bankers' pause lasts. It could be as short as six weeks — more of a skip than a pause — if they choose to hike again at the July meeting. On the other hand, the bankers could decide they'd like to hold interest rates at this level for a while. A quick skip could mean a rate rebound; a longer pause might see mortgage rates fall.

One outcome not to expect is a rate cut. Fed officials have indicated a cut is not on the horizon, much as markets might like to see one.

Mortgage loans from our partners

Next Door Lending LLC - PURCHASE logo
Check Rate

on Next Door Lending LLC

Next Door Lending LLC

5.0

NerdWallet rating 
Next Door Lending LLC - PURCHASE logo

5.0

NerdWallet rating 
Min. credit score 
580

Min. down payment 
0%

Check Rate

on Next Door Lending LLC

Rocket Mortgage - PURCHASE logo
Check Rate

on Rocket Mortgage

Rocket Mortgage

5.0

NerdWallet rating 
Rocket Mortgage - PURCHASE logo

5.0

NerdWallet rating 
Min. credit score 
580

Min. down payment 
3.5%

Check Rate

on Rocket Mortgage

NBKC - PURCHASE logo
Check Rate

on NBKC

NBKC

5.0

NerdWallet rating 
NBKC - PURCHASE logo

5.0

NerdWallet rating 
Min. credit score 
620

Min. down payment 
0%

Check Rate

on NBKC

New American Funding - PURCHASE logo
Check Rate

on New American Funding

New American Funding

4.5

NerdWallet rating 
New American Funding - PURCHASE logo

4.5

NerdWallet rating 
Min. credit score 
500

Min. down payment 
3.5%

Check Rate

on New American Funding

Veterans United - PURCHASE logo
Check Rate

on Veterans United

Veterans United

4.5

NerdWallet rating 
Veterans United - PURCHASE logo

4.5

NerdWallet rating 
Min. credit score 
620

Min. down payment 
0%

Check Rate

on Veterans United

Mortgage loans from our partners

Next Door Lending LLC - PURCHASE logo
Check Rate

on Next Door Lending LLC

Next Door Lending LLC

5.0

NerdWallet rating 
Next Door Lending LLC - PURCHASE logo

5.0

NerdWallet rating 
Min. credit score 
580

Min. down payment 
0%

Check Rate

on Next Door Lending LLC

Rocket Mortgage - PURCHASE logo
Check Rate

on Rocket Mortgage

Rocket Mortgage

5.0

NerdWallet rating 
Rocket Mortgage - PURCHASE logo

5.0

NerdWallet rating 
Min. credit score 
580

Min. down payment 
3.5%

Check Rate

on Rocket Mortgage

NBKC - PURCHASE logo
Check Rate

on NBKC

NBKC

5.0

NerdWallet rating 
NBKC - PURCHASE logo

5.0

NerdWallet rating 
Min. credit score 
620

Min. down payment 
0%

Check Rate

on NBKC