The Federal Reserve decided to keep interest rates steady at its June meeting this week.

This was the first time since March 2022 that the Fed has not raised rates. The move bodes well for the housing market and home buyers in search of rate stability or a potential signal for decline coming soon.

Fed Pauses Recent Hikes, Good News For Mortgage Rates

The decision to pause rate hikes was made in light of the recent slowdown in economic growth and the high level of inflation. The Fed is now focused on monitoring the economy and will continue to adjust its policy stance as needed.

The Fed’s decision to pause rate hikes is a sign that it is concerned about the recent slowdown in economic growth. The economy grew at an annual rate of 1.5% in the first quarter of 2023, which was the slowest pace of growth since the start of the pandemic. The Fed is also concerned about the high level of inflation, which is running at a 40-year high.

Federal Reserve rate adjustments have an indirect but significant impact on mortgage rates. When the Fed raises interest rates to combat inflation or stimulate economic growth, it can lead to higher borrowing costs for banks, which in turn affects the rates they charge on mortgages. This can cause mortgage rates to increase, making home loans more expensive for borrowers.

Conversely, when the Fed lowers interest rates to encourage borrowing and stimulate the economy, mortgage rates tend to decrease, making homeownership more affordable. While the relationship between Fed rate adjustments and mortgage rates is not direct, they influence the overall economic conditions, investor sentiment, and demand for mortgage-backed securities, ultimately shaping the trajectory of mortgage rates.

So, the Fed’s decision to pause rate hikes is likely to have a stabilizing effect on mortgage rates for now, and the decision to pause rate hikes suggests that the central bank is no longer in a hurry to raise rates. This could lead to mortgage rates leveling off or even falling slightly in the near future.