Fed Pauses Interest Rate Hikes
November 10, 2023
CNBC and many other sources published headlines at the end of October and early November 2023 about the Fed's pause in its aggressive rate hike policy designed to curb inflation.
Rate hikes started in March 2022, and CNBC notes this is only the second pause since that effort started.
The Fed still has two more opportunities to raise interest rates in the near future, and while the inflation control measures seem to be helping, the pause in rate hikes does create some confusion for first-time home buyers who might not be sure what this move means or how it affects them.
The biggest question in this area is typically whether or not the latest Fed decision about raising or lowering interest rates will directly affect a loan transaction and how.
Why Does the Fed Adjust Rates?
Investopedia has a simple answer to this common reader question. It starts by reverse engineering the answer. How does the Fed handle rates when economic times are good?
“The theory is that by cutting rates” offered to banks lending money, “borrowing costs decrease, and this prompts businesses to take out loans to hire more people and expand production.”
When economic times are like they are now, “The logic works in reverse when the economy is hot,” meaning “an increase in interest rates sends the price of bonds lower...rates rise,” which means consumers are “also less likely to borrow or refinance existing debts, since it is more expensive to do so.”
That is meant to help guide the economy to a more stable place when the plan works as intended.
FHA Loan Interest Rates vs. Fed Rate Hikes
Does the Fed's pause on rate hikes mean FHA loan interest rates will no longer change? No, it does NOT mean you won’t see rate fluctuations. Mortgage loan rates are affected by various factors, including the Fed rate, investor reactions to daily financial market developments, and more.
The Fed does not directly control mortgage rates. When the Fed pauses a rate hike program, it means that it’s pausing increases in how much it costs a lender to loan you money. The lender will adjust their own rates in turn.
Fed Actions Are Only One Factor
When the Fed pauses rate hikes, it means that’s one factor in how your home loan rates are set and offered that won’t change in the meantime.
But it does not mean the OTHER factors that influence your mortgage loan rate are paused. The other factors still affect your rate and how long it may be offered.
It’s best to ask a participating FHA lender how the Fed rate hike policies might affect your loan if you are still unclear on how your home loan interest rate offer works.
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Rate hikes started in March 2022, and CNBC notes this is only the second pause since that effort started.
The Fed still has two more opportunities to raise interest rates in the near future, and while the inflation control measures seem to be helping, the pause in rate hikes does create some confusion for first-time home buyers who might not be sure what this move means or how it affects them.
The biggest question in this area is typically whether or not the latest Fed decision about raising or lowering interest rates will directly affect a loan transaction and how.
Why Does the Fed Adjust Rates?
Investopedia has a simple answer to this common reader question. It starts by reverse engineering the answer. How does the Fed handle rates when economic times are good?
“The theory is that by cutting rates” offered to banks lending money, “borrowing costs decrease, and this prompts businesses to take out loans to hire more people and expand production.”
When economic times are like they are now, “The logic works in reverse when the economy is hot,” meaning “an increase in interest rates sends the price of bonds lower...rates rise,” which means consumers are “also less likely to borrow or refinance existing debts, since it is more expensive to do so.”
That is meant to help guide the economy to a more stable place when the plan works as intended.
FHA Loan Interest Rates vs. Fed Rate Hikes
Does the Fed's pause on rate hikes mean FHA loan interest rates will no longer change? No, it does NOT mean you won’t see rate fluctuations. Mortgage loan rates are affected by various factors, including the Fed rate, investor reactions to daily financial market developments, and more.
The Fed does not directly control mortgage rates. When the Fed pauses a rate hike program, it means that it’s pausing increases in how much it costs a lender to loan you money. The lender will adjust their own rates in turn.
Fed Actions Are Only One Factor
When the Fed pauses rate hikes, it means that’s one factor in how your home loan rates are set and offered that won’t change in the meantime.
But it does not mean the OTHER factors that influence your mortgage loan rate are paused. The other factors still affect your rate and how long it may be offered.
It’s best to ask a participating FHA lender how the Fed rate hike policies might affect your loan if you are still unclear on how your home loan interest rate offer works.
------------------------------
RELATED VIDEOS:
There's a Difference Between APR and Interest Rates
Choose Your Mortgage Lender Carefully
Getting Started With Your FHA Loan Application
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