When interest rate cuts do come, it won't be a cure-all for today's unaffordable housing market. Saifulasmee Chede/Getty Images/CNET
If you followed the Federal Reserve's monetary policy decisions last year, you might have been puzzled: The Fed's three interest rate cuts didn't translate into cheaper mortgages. In fact, the average rate for a 30-year fixed home loan has hovered around 6.8% since late fall.
On Wednesday, the central bank is expected to extend a pause on interest rate cuts for a fourth consecutive time this year. Though mortgage rates could see some volatility, many economists expect them to stay somewhat flat until there's a drastic change in the economic picture.
Rates will stay in the 6.75% to 7.25% range unless the Fed signals multiple cuts soon and backs it up with data, said Nicole Rueth, of the Rueth Team with Movement Mortgage. "Homebuyers waiting on rates to drop drastically might be disappointed," Rueth said.
The relationship between the Fed's interest rate decisions and home loan rates isn't direct or immediate. Often, what the central bank says about future plans can move the market more than its actual actions. Mortgage rates are driven by the bond market, investor expectations and a host of other economic factors.
"Mortgage rates move on expectations, not announcements," said Rueth.
All eyes will be on Fed Chair Jerome Powell's post-meeting remarks. If Powell signals concerns about lingering inflation or the chance of fewer cuts, bond yields and mortgage rates are likely to climb. If he expresses optimism about inflation being under control and hints at ongoing policy easing, mortgage rates could dip.
"It's most often the case that longer-term interest rates begin to decline before the Fed cuts rates," said Keith Gumbinger, vice president at HSH.com.
Here's what you need to know about how the government's interest rate policy influences your home loan.
What is the Federal Reserve's relationship to mortgage rates?
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