If you’re thinking about buying or selling a home, you’re likely keeping a close eye on mortgage rates and wondering what lies ahead.

One key factor influencing mortgage rates is the Federal Funds Rate, which affects the cost for banks to borrow money from each other. While the Federal Reserve (the Fed) doesn’t directly control mortgage rates, they do control the Federal Funds Rate.

This connection is why many are closely watching to see when the Fed might lower the Federal Funds Rate. A reduction would likely put downward pressure on mortgage rates. With the Fed meeting next week, here are three critical metrics they will consider in their decision:

1. The Rate of Inflation

Inflation has been a hot topic recently, impacting the cost of almost everything. High inflation means prices are rising quickly. The Fed aims to bring the inflation rate down to 2%. While it's still higher than that, it's moving in the right direction:

2. Job Growth

The Fed also monitors monthly job creation. They want to see job growth slow consistently before adjusting the Federal Funds Rate. A slowdown in job creation indicates a cooling economy, which is their goal. According to Inman:

“. . . the Bureau of Labor Statistics reported that employers added fewer jobs in April and May than previously thought and that hiring by private companies was sluggish in June.”

While job creation continues, the pace has slowed, indicating a cooling economy.

3. The Unemployment Rate

The unemployment rate measures the percentage of people seeking jobs who can't find them. A low unemployment rate means many are employed, but it can also drive up inflation due to increased spending. Currently, the unemployment rate is low but has been gradually rising:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A consistently rising unemployment rate helps the Fed gauge reduced spending, which aids in controlling inflation.

What Does This Mean Moving Forward?

Mortgage rates will likely remain volatile in the near future, but current trends suggest the economy is moving in the desired direction. However, it’s unlikely the Fed will cut the Federal Funds Rate in their upcoming meeting. Jerome Powell, Chair of the Federal Reserve, stated:

“We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy.”

While early signs are promising, the Fed needs more data to confirm a consistent trend. If this direction continues, experts predict a 96.1% chance the Fed will lower the Federal Funds Rate at their September meeting, according to the CME FedWatch Tool.

Remember, the Fed doesn’t directly set mortgage rates, but their decisions influence them. The timing of Fed actions can change due to new economic reports, global events, and other factors. Trying to time the market is often challenging.

Recent economic data offers hope for mortgage rates. Stay informed by consulting a trusted local real estate agent who can keep you updated on the latest trends and their implications for you.