Is a Fed Rate Hike Coming? Why You Should Lock Your Mortgage Rate Now

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Today's topic: the Fed flips the script

Welcome to Mortgage Mom Radio. I'm Debbie Marcoux, the Mortgage Mom. Today we are going to be talking about how the Fed has flipped the script and they are talking about a possible rate hike rather than a rate cut.

We're going to look at what two of the top voices — our new chairman, Kevin Warsh, and Governor Chris Waller — have had to say. I'm going to pull up the exact details for you and let you know what is going on, but it is looking like there's a very good chance they might be increasing rates rather than cutting them at the next Fed meeting.

What changed: Iran, inflation, and a soft jobs report

Let's scoot back a little to what has been taking place. Obviously we all know about the conflict in Iran. Our inflation reports have come out most recently inflated. We were actually edging toward where the Fed wanted to be — we were getting closer to that 2% inflation goal — and then the conflict started, and you can feel it in your pockets. You can feel it in the goods you're buying, in the oil you're spending on gas at the station. Inflation is up, and not only did it go up, it went up a lot.

With that, everybody started speculating that there really could be a rate hike, but many were on the fence saying, nah, I don't think they really will. Then the unemployment report came out, and the jobs report was quite a bit softer than they would have liked to see. So the people who look at the economy for a living were saying: there's just no chance. The Fed would not do a rate hike, would not bring interest rates higher, not when employment is soft.

Go back to Mr. Powell over his years in office — the thing he always quoted in his meetings was that the top interests are the 2% inflation goal and the jobs market. They did not want a soft job market. Well, this last employment report came out and it was a soft job market. Very soft. So we were thinking there's just no way they're going to give us a rate hike.

And then the bomb dropped yesterday when the Fed talked. They didn't come right out and say they're going to increase interest rates, but they made it sound very plausible that they would. The reason we believe that is because they said: we understand that employment is softening, but we feel that inflation is something we have to attack first, and it is more important. When you hear those words, it is very difficult to believe they are just going to hold things steady.

Kevin Warsh at the ECB forum: “prices are too high”

Let's get to what Kevin Warsh had to say. I'm going to do some reading, because I want to bring you information that is accurate — and I'm giving credit where credit is due: this is from CNBC.

It says Federal Reserve Chairman Kevin Warsh, in comments Wednesday at the ECB forum on central banking, declined to give any signal as to what the central bank may do at its meeting later this month, but did note that inflation was too elevated. “We are all in the price stability business — that might not be our only business. But if there was a common thing I heard over the last couple of days, it was open-mindedness on these questions of AI, open-mindedness on productivity. But we've all looked around and we've all seen that prices are too high,” Warsh told CNBC's Sara Eisen during the panel in Portugal.

The new central bank leader also said the staffing for the five task forces he unveiled last month, to study the various functions of the Fed, will be announced next week. “My hope, my aspiration is that 9 to 12 months from now, we're going to be using new technologies to understand what's happening in the real economy in a contemporaneous, real-time way that positions us as central bankers to make better decisions.” Along with Warsh, the group also featured European Central Bank President Christine Lagarde, Bank of England Governor Andrew Bailey, and Bank of Canada Governor Tiff Macklem. Aside from his post-meeting news conference two weeks ago, this is the first time Warsh has spoken publicly since being confirmed in May. The Fed has been on hold this year with interest rates as policymakers weigh the persistence of inflation against other economic factors.

So Warsh notes that the Fed sees prices as too high. What do they do when they feel prices are too high? They raise rates. They want to make lending more difficult, make buying things more difficult, slow the economy down. How do they slow the economy down? They raise interest rates. And on July 1, Warsh vowed to get inflation back to 2% — he said he was encouraged by inflation expectations easing recently, but the current level still isn't good enough.

The July 29 meeting and what the projections show

The next Federal Open Market Committee meeting will be July 29, so we've got about three weeks to wait at this point. According to the CME FedWatch tool, as of July 8 there is a 70.1% probability that the Federal Reserve will maintain rates at the upcoming meeting. So they're saying they think rates are going to stay the same. But there are other places saying they think it is going to go up, and that they are leaning toward that.

Updated projections pointed to a more hawkish outlook. The median path shifted from an expected cut to roughly one quarter-point hike by year-end 2026, with nine out of 19 policymakers seeing at least one hike this year. Forecasts also showed slightly slower 2026 GDP growth and higher inflation, including core PCE at 3.3%.

The Fed doesn't set mortgage rates

So what is going to happen if they do a rate hike? A lot of people get really worried that interest rates are going to climb through the rafters. Does that happen? Sometimes it does. Does it happen every time? It doesn't.

Back in 2006, 2007, early in my career, I remember quite a few times the rate was actually cut by the Fed — and if you've been around the business a long time, you've seen what happens after these announcements. Many times when they say they are cutting the rate, we don't actually see interest rates go down; we see interest rates go up. We've seen this over and over again. And when they say they believe they're going to give us a rate hike, a lot of times the day of the announcement, interest rates actually get a little bit better.

Remember that mortgage interest rates are not tied to the Federal Reserve prime rate like your credit cards or your home equity lines of credit — those short-term loans. Mortgage is tied to mortgage-backed securities, notes, bonds, and the actual market. We work off of expectations.

And at this point in time, from July 1 to July 8, there has been an absolute flip in what we believe is going to happen. We have gone from thinking they're going to hold the rate steady — and that if we had a rate hike, maybe it wouldn't happen until the end of the year — to believing we're going to see a rate hike at the next Fed meeting, which is July 29.

What that means for rates between now and month-end

Mortgage is all anticipation. If we are expecting rates to drop, we will typically see that performing in the market before the announcement — traders are basically pregaming the show, giving us those rate cuts in advance of the actual announcement being made.

So what is happening today? Interest rates went through the roof today. It started last week, when things were uncomfortable with the inflation report and then the jobs report, and then yesterday afternoon and today things went off the rails a bit, because everybody believes there's going to be a rate hike.

Realistically, between now and the end of this month, if the general consensus is still that rates are going up, we're going to see our rate sheets change on a daily basis. They're going to get a little bit worse — not a lot worse every single day, but incremental movements that add up over a couple of weeks, probably by a quarter to maybe three-eighths in interest rate. If our average interest rate today is 6.5% — this is an example, not a rate quote — then two or three weeks from now we could be 6.75%, we could be 6.875%, we might even touch that 7% mark.

Then if they come out and say yes, we are going to increase interest rates — because what was believed to happen is what happened — there's actually a good chance we'll see interest rates get just a little bit better. Don't set false expectations: it's not that we'd go from 7% to 6.75% overnight because they made the announcement we were expecting. But it slows that train down, stops it, and levels things off. We might sit around 7% for a little bit, and then slowly, over a couple of weeks, maybe fall back into that 6.875%, 6.75% range.

Lock or wait: Debbie's advice

For over a year, the whole audience has heard “when will the Fed cut?” And this week, two of the most senior voices on the FOMC used blunt language to say the opposite is now realistic. So: should I lock, or should I wait?

If you have a loan in process right now, lock your rate. There is a very, very good chance that where interest rates are today will be better than they will be in 30 days when you are ready to close your loan. Lock your rate.

If you are thinking about doing a loan and you are in need of it — you need to refinance, you need to pay off debt, you need that home equity line of credit — but you were hoping to wait it out for better rates: stop waiting. Call and get it started. Do not wait any longer. You always have the opportunity to refinance down the road when interest rates fall further. But the chances of rates being better in 30 days than they are today are slim. And again — I don't have a crystal ball. This is my opinion, from 30 years of being in this business and watching how the market works.

If your goal has been “I'm not moving until interest rates are back to 4%” — go ahead and put all of that on the back burner. You are not getting there. Not anytime this year, and realistically probably not next year. If you've been waiting to buy but you can understand that this is the new normal, then understand that this is the new normal and get out there and get things started. The whole wait-watch-and-see is out the door at this point.

Interest rates are where they are. They're here to stay for quite some time. We are not going to jump back down to the low 3s and high 2s unless there is a major catastrophe like what we experienced with COVID. Average rates right now are going to hover somewhere between the high 5s and high 6s to low 7s. That is just what it is. But if you're in process, get yourself locked in today. Please. If you are just entering escrow on a house, call your lender and get locked in today. If you need to pull cash out or do home improvements and you've been needing that refinance, please get that started today — we can always refinance it down the road.

Next week: big condo changes — and wrap-up

I did promise last week that I was going to talk about condominiums. There are very big changes coming to condominiums, and that was actually going to be my topic today, but I felt this was bigger news — we saw a very quick jump in the market, and I wanted to make sure that anybody out there who needs a rate locked in understood what was going on.

If you are a real estate agent selling condominiums, a condominium homeowner, someone who manages an HOA or is the president of an HOA, it would be very good for you to understand the changes coming from Fannie Mae and Freddie Mac. It is going to be a big change to the condo market that could very easily disqualify many complexes from being able to get financing. I will do that show next week, right here again at 3 p.m., streaming on TikTok, Instagram, Facebook, and YouTube.

You can text the word LIVE to 844-935-3634 — that's 844-WE-LEND-4 — to get the link when I go live, and that's also the number to call my office if you'd like to speak with me or anybody on my team. We just launched a brand new website at mortgagemomradio.com: there are calculators for debt-to-income ratios and refinances, you can watch the show from the site, sign up for texting, find realtor referrals, and ask me a question that I'll read out loud and answer on next week's show.

I gave you the update on what the heck is happening with the Federal Reserve — probably bad news, but realistically there's a good chance we're going to see a rate hike at the next meeting. Let's hope I am absolutely wrong. Let's hope everything I am reading is wrong, that they take other factors into consideration and choose not to do it. That would be the best outcome, and that is what we hope for. But it is good for you to know that this is on the table. I hope you all have a fantastic rest of your Wednesday, and I will be back here again next Wednesday at 3 p.m. We'll talk to you all real soon. Bye-bye.