Fed Chairman Kevin Warsh and the other members of the Federal Open Market Committee will cast their votes on rate policy on Wednesday.
Federal Reserve policymakers will begin their two-day meeting to set interest rate policy on Tuesday, and the central bank is widely expected to hold off on further changes after hiking rates last month.
Fed Chairman Kevin Warsh and the other members of the Federal Open Market Committee will cast their votes on rate policy on Wednesday. Financial markets now estimate a 90% probability that policymakers will leave the benchmark rate unchanged in its current range of 3.74% to 4.00%, according to CME FedWatch.
In September, the Fed raised overnight rates for the first time in three years, in response to pernicious inflation. Most experts also expect another rate hike in December and at least one more next year.
But with the midterm elections now just one week away, the central bank is now seen as likely to make no change on Wednesday, perhaps in part to avoid the risk of injecting monetary policy into midterm political debates.
President Donald Trump has persistently called on the Fed to dramatically slash interest rates, which would supercharge the economy and reduce government borrowing costs. But so far, Trump has remained publicly supportive of Warsh, his handpicked choice to succeed former Chair Jerome Powell, even after Warsh joined last month's unanimous vote to hike rates.
By law and tradition, the Fed is structured to be independent from political influence, and Fed policymakers may prefer to keep a low profile so close to a major election.
History shows that keeping interest rates artificially low for political purposes can lead to runaway inflation and capital flight, wreaking havoc on the economy and ultimately driving up borrowing costs.
Instead, the Fed is supposed to set rates based on its dual mandate of price stability and maximum employment, using higher rates to fight inflation and lower rates to boost the job market. Even so, policymakers often have honest disagreements about what interest rate would be ideal for the economy.
The Fed doesn't directly set mortgage rates, which instead move in response to the bond market. Earlier this month, surging bond yields sent mortgage rates to a three-year high of 7.40%. However, last week mortgage rates pulled back to 7.32% as bond prices rose, according to Freddie Mac.
Bankrate housing market analyst Jeff Ostrowski says that recent mortgage rate gyrations since the last Fed policy meeting underscore the fact that the central bank doesn't control mortgage rates.
"The Fed raised its benchmark rate a quarter-point, and mortgage rates jumped three-quarters of a point in a month. The lesson? Mortgage rates move with 10-year Treasury yields, not the federal funds rate,” he says.
Still, Fed policy does play a key role in the bond market, as investors monitor inflation expectations and judge whether the Fed is willing to crack down on runaway price increases if necessary.
(Realtor.com) What homebuyers should watch for at Fed meeting
If the Fed stands pat on interest rates as expected, the possibility of dissenting votes and Warsh's commentary at a press conference following the vote have the most potential to move bond markets.
Still, prospective homebuyers shouldn't hold out much hope for instant relief on mortgage rates. A recent forecast from economists at the Mortgage Bankers Association projected that mortgage rates would remain above 7% through 2027.
"Buyers need to adjust their expectations and recognize that higher mortgage rates may be here for the foreseeable future," says Mendel Fellig, a real estate agent with Compass in Miami. "Historically, rates have been significantly higher, and buyers should focus on finding a property they love at a price they can comfortably afford rather than trying to time the market."
Indeed, the brief period in 2020 and 2021 when mortgage rates dipped below 3% marks the only time in modern history that mortgage rates have fallen that low.
Fellig says that in South Florida, limited inventory has kept many sellers confident in their pricing, while elevated borrowing costs have made buyers more cautious and price-sensitive.
"My advice to sellers is to remain flexible," he says. "If a property has been sitting on the market and a serious offer comes in, it's often better to bridge the pricing gap than hold out for an uncertain next offer. In today's market, realistic pricing and a willingness to negotiate are essential to getting deals done."
Jesse Ebner, a Colorado broker and owner of Ebner & Associates, says one potential upside of the higher-rate environment is less competition from other buyers.
"In certain situations, buyers may have more negotiating leverage, greater flexibility on terms, or opportunities to secure seller concessions," she says.
Ebner is already seeing the impact of higher interest rates on buyer behavior, negotiating dynamics, and the overall pace of the market.
"We’re seeing buyers become more deliberate and payment-conscious," she says. "They may take longer to make decisions, consider a smaller home, expand their geographic search, or become more selective about the features they’re willing to pay for. The monthly payment has become just as important as the purchase price, if not more."