Mortgage Rates Thursday: Up a Notch Following Fed Meeting

Finding the Right Mortgage, Mortgage Rates, Mortgages
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Average mortgage rates rose by one basis point for the 30-year fixed, 15-year fixed and 5/1 ARM, according to a NerdWallet survey of daily mortgage rates published by national lenders Thursday morning.

The 30-year fixed has risen six basis points in the last week. It’s up 35 basis points compared with one year ago.

Mortgage rates went up after the Federal Reserve said Wednesday that it is more optimistic about economic growth than it was just three months ago. The central bank added that it will begin selling some of the bonds it owns. And the Fed hinted that it might raise short-term interest rates in December.

At its monetary policy meeting, which concluded Wednesday, the Fed said it expects the economy to grow by 2.4% this year. That’s an upward revision from the central bank’s forecast in June, when it forecast that the economy would grow by 2.2% this year. Faster economic growth tends to push interest rates higher as consumers and businesses compete to borrow money.

Another thing tends to happen when the economy grows faster: Inflation usually picks up. But even though the Fed upgraded its economic growth projection, it downgraded its inflation forecast. In June it projected that core inflation would hit 1.7% this year and 2% next year. Now the Fed forecasts 1.5% inflation this year and 1.9% inflation next year.

In her statement after the conclusion of the policy meeting, Federal Reserve Board Chair Janet Yellen acknowledged that economists are trying to figure out why inflation remains so stubbornly low, saying, “our understanding of the forces driving inflation is imperfect” and that the low inflation rate is unexpected.

The prospect of faster economic growth on one side and persistently low inflation on the other side tends to create a tug of war with interest rates. Economic growth tends to pull rates higher, and sluggish inflation tends to drag rates lower. With both sides tugging in opposite directions, there hasn’t been much movement in mortgage rates in recent months.

As expected, the Fed also announced that it will begin to gradually shrink its $4.5 trillion portfolio of bonds next month. Over time, the shrinking of the Fed’s bond portfolio could push mortgage rates (and other long-term interest rates) upward, because higher rates would be necessary to attract investor money.

Finally, futures markets are forecasting a higher probability that the Fed will hike the short-term federal funds rate in December. According to the CME FedWatch, investors have priced in a 70.5% chance of a rate increase in December; two days ago the odds were 56.6%.

MORTGAGE RATES TODAY, THURSDAY, SEPT. 21:

(Change from 9/20)
30-year fixed: 4.02% APR (+0.01)
15-year fixed: 3.45% APR (+0.01)
5/1 ARM: 3.90% APR (+0.01)


NerdWallet daily mortgage rates are an average of the published annual percentage rate with the lowest points for each loan term offered by a sampling of major national lenders. APR quotes reflect an interest rate plus points, fees and other expenses, providing the most accurate view of the costs a borrower might pay.

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