Sep 21 2022

Will Fed hikes cause mortgage rates to rise?

The Fed's relationship with mortgage rates isn’t as cut-and-dried as you think.

It’s not always the rate hike. Sometimes, it’s the forecast leading up to the hike that causes mortgage rates to rise. In the weeks prior to the Federal Reserve’s fifth rate increase in 2022, mortgage rates began moving up in anticipation.* Now that the announcement has been made, homebuyers are wondering if mortgage rates will rise further, drop, or remain unchanged.

The Fed hikes rates again: How will mortgage rates be affected?

The Federal Reserve’s benchmark rate doesn’t impact mortgage rates directly. Instead, a Fed rate increase has an indirect effect on mortgage rates—and not always in a predictable direction.*

It’s helpful to know that:

  • Movement of the federal funds rate dictates the short-term cost of borrowing; this includes credit card interest, car loans, HELOCs, and adjustable-rate mortgages.
  • Fixed mortgage rates move more closely with the 10-year Treasury rate. The projection for the Treasury rate is usually considered to be a reliable indicator of where mortgage rates may be heading.
  • The Federal Reserve influences mortgage rates indirectly by purchasing government bonds and MBS (mortgage-backed securities).


The Federal Reserve increasing rates once again is another step in the continued fight against inflation. You can read more about that here, as well as how homeownership can be a reliable hedge against inflation. Higher mortgage interest rates are generally seen in times of inflation, while an economic slowdown or recession can have the opposite effect, potentially triggering a mortgage rate decline.

“The Federal Reserve has been reducing its balance sheet and raising its benchmark rate in an effort to tame inflation,” says Odeta Kushi, First American Deputy Chief Economist. “That has resulted in higher 10-year Treasury yields, which has resulted in higher mortgage rates.”

It’s possible to find a mortgage you feel good about, no matter what rates are doing. Click here to get started.

Unwieldy mortgage rates can naturally cause anxiety, especially for homebuyers preparing to purchase. But from a broad perspective, current mortgage rates are still below the historical average.

As Nadia Evangelou, NAR (National Association of REALTORS®) Senior Economist and Director of Forecasting, summarized prior to the last Fed rate increase in July: “With the potential of a more aggressive rate hike from the Federal Reserve at the end of the month, mortgage rates will likely rise even further. However, even with this increase mortgage rates will continue to be historically low… in 2022.”

Interestingly, mortgage rates actually dropped after the Federal Reserve’s July 27 announcement. This post-announcement dip only underscores the indirect relationship between the federal funds rate and mortgage interest rates.

Right now, there are a few takeaways if you’re a homebuyer:

  • Mortgage rates can be unpredictable. While no one can guarantee where they’re heading, you can get a better idea of today’s rates by consulting a local Loan Officer for guidance.
  • It’s true that rising rates add to the cost of borrowing. But other factors also come into play. Your credit score, loan term/type/amount, and down payment are among several variables that can influence what you pay for your monthly mortgage.
  • Even with a rate hike, there could be a silver lining. In a market with higher rates, it typically means fewer buyers and less competition. As a result, you may find more options in your price range. And since there aren’t as many bidding wars, home value inflation might not be as extreme.

If you’re hoping to purchase soon but haven’t gotten a personalized assessment yet, then you don’t know how much your monthly payment could be. Contact a local Academy Loan Officer to find out.

This is for informational and educational purposes only and not intended as an advertisement as defined by Regulation Z. Please consult a trusted professional as personal circumstances may vary. No specific results are guaranteed. MAC923-1483148/MAC923-1483188.