How the Economy Shapes Mortgage Rates:

If you’re in the market for buying or selling a home, you’re likely keeping a close eye on mortgage rates and pondering what’s coming next.

Mortgage rates are indirectly influenced by the Federal Funds Rate, which is set by the Federal Reserve (the Fed). While the Fed doesn’t directly set mortgage rates, they do control the cost at which banks borrow money from each other through the Federal Funds Rate. This, in turn, affects mortgage rates.

With the Fed’s next meeting on the horizon, many are watching to see if they will lower the Federal Funds Rate. A decrease here could lead to lower mortgage rates. Key metrics the Fed will consider in their decision include:

1. Inflation Rate

   Inflation has been a hot topic lately, and you’ve probably felt its effects at the checkout line. The Fed aims to reduce inflation to around 2%. Although current rates are still above this target, they are trending in the right direction.

2. Job Growth

   The Fed monitors monthly job creation closely. A slowdown in job growth signals that the economy is cooling off, which is a positive sign for the Fed. Recent reports show that job growth is slowing, suggesting the economy is stabilizing after a period of rapid expansion.

3. Unemployment Rate

   The unemployment rate measures the percentage of people looking for work but unable to find jobs. A low rate is good for workers but can contribute to higher inflation. Currently, the unemployment rate is low but has been rising slightly. A gradual increase in unemployment could help ease inflation pressures.

   
   

What’s Next for Mortgage Rates?

While mortgage rates are likely to remain fluctuating, current economic indicators suggest we might be heading in a favorable direction. However, the Fed is cautious and will want more evidence before making a move. Jerome Powell, the Fed Chair, has emphasized the need for a clearer trend toward lower inflation before any rate cuts are made.

Experts predict a 96.1% chance the Fed might reduce the Federal Funds Rate at their upcoming September meeting. However, remember that the Fed’s actions are just one piece of the puzzle. Market conditions and global events can also impact mortgage rates.