The big news last week, and the last time we’ll be talking about it for a while, was the Federal Reserve’s move, via the Federal Open Market Committee (FOMC), of an increase of 25 basis points, or .25 percent. There is a lot of good news for brokers, not the least of which being there may be little effect on current mortgage rates after the most recent rate hike.

Orion’s clients know that mortgage rates aren't directly tied to moves made by the Fed, nor does the Federal Reserve set mortgage rates. But the FOMC, made up by the Presidents of various Federal Reserve Districts, is influenced in its decision making by events and news that also impact the bond market and therefore mortgage rates. A number of factors influence a borrower’s mortgage rate, including financial markets, inflation, Treasury yields and more, in addition to individual application details.

But even though mortgage rates might not be impacted, your clients and other consumers will be. Increasing the cost of monthly credit payments helps to bring down the price of goods and services in the economy. The cost of nearly everything (hotels, cars, dining out, food at the supermarket) has gone up at a pace the Fed is deeply uncomfortable with.

The Fed believes, and with good reason, that by making it more expensive for consumers and businesses to borrow money, it hopes to reduce overall economic activity. And inflation is indeed too many dollars chasing too few goods. So, it is raising costs now so that consumers and businesses don't expect prices to increase in the future.

So even if there is little impact of a change in overnight rates on 30-year mortgage rates, for the average consumer, the Fed’s increase means higher credit card interest rates and higher auto loan rates. For businesses, the higher interest rates also mean it costs more to borrow money, thus making it tougher to hire people and invest.

The bond market (and stock market) is forward-looking, and expectations are that the Fed will be done with increasing rates in the near future, including its next meeting in September. Our brokers know that mortgage rates peaked in October 2022 when the Fed Funds rate was around 3% and mortgage rates are currently lower than October 2022, even though the overnight Fed Funds rate is around 5%. Rates will go up or down a little, just as they usually do, but we may see a period of relative calm for quite some time.

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