The Fed Just Froze Interest Rates: Here’s How It Affects Your Mortgages

The Federal Reserve held interest rates steady on Wednesday after the 30-year fixed-rate mortgage climbed to its highest level in nearly a year this week, driven by renewed energy price hikes following the collapse of the U.S.-Iran ceasefire.

The central bank was widely expected to leave its benchmark interest rate in the 3.50 percent to 3.75 percent range, even as three of the Federal Reserve’s 12 policymakers voted for a hike. President Donald Trump, who has long been demanding the central bank slash rates, has stood by new chairman Kevin Warsh, describing him as "a brilliant guy" to reporters at the Oval Office on Wednesday.

"I know he’d love to see lower interest ​rates, but he’s got a board, and it’s a political board, ​and they want to keep rates up. But we fight through ⁠rates," he said.

Many analysts still expect rate hikes to occur in the coming months. Meanwhile, even with rates unchanged, the Federal Reserve’s decision this week could still have an impact on mortgages and the housing market.

How the Fed’s Decision Will Impact Mortgages

The Federal Reserve does not directly set mortgage rates, but its decisions play a significant role in the percentages lenders offer would-be homeowners. Both 15- and 30-year fixed mortgage rates follow the lead of long-term Treasury yields, which are directly influenced by the Federal Reserve’s decisions on the federal funds rate.

Treasury yields climbed to their highest level since July 2007 on Wednesday, with the 30-year Treasury bond yield jumping 10.5 basis points to 5.201 percent, as renewed concerns around the conflict in the Middle East and continued disruptions in the oil markets are stoking fears of persistent inflation.

Mortgage rates have similarly been on the rise, with the 30-year fixed-rate mortgage reaching a national average of 6.58 percent as of the week ending on July 23, according to Freddie Mac. Daily data from Bankrate shows that the national average rate was 6.75 percent on Wednesday.

Borrowing costs for U.S. would-be homebuyers could rise even further in the coming days, considering that Treasury yields continued climbing even after the Federal Reserve’s decision to freeze interest rates. As of 3:20 a.m. ET on Thursday, according to CNBC, the 30-year Treasury bond had risen by more than 9 basis points to 5.236 percent.

"Oil and inflation remain the biggest drivers, and mortgage rates will likely need energy prices to settle and inflation to remain under control before they can move meaningfully lower," loanDepot Chief Investment Officer and Head Economist Jeff DerGurahian said in a statement shared with Newsweek.

What Can Would-Be Homebuyers Expect This Year?

Inflation remains well above the central bank’s target of 2 percent and could potentially rise even further this year if the war in Iran continues, forcing the Federal Reserve to end its streak of rate pauses in 2026.

An interest rate hike later this year—as expected by many observers—would be the first one since July 2023.

"Between now and the September meeting, inflation reports will be the Fed’s main focus," DerGurahian said.

"Unless there is a major technology-sector sell-off or a couple of very weak labor reports, the market will be watching to see whether elevated oil prices begin to bleed into core inflation and those readings will likely shape whether the Fed’s next move comes in September, October, or later in the year."

For millions of borrowers and homeowners looking to refinance, this is a scary prospect, as mortgage rates could likely rise back in the 7 percent range and weigh even heavier on their finances.

The likelihood of further mortgage rate hikes in the coming months makes locking in a mortgage rate now a good option for those who can afford it. Borrowers can always unlock the rate should mortgage rates come down in the future, but as of now, they could protect themselves against increases.

Adjustable-rate mortgages can also be a more affordable option when facing high fixed-rate costs, though they come with the risk of a higher rate reset later on. On top of that concern, adjustable-rate mortgages are also rising at the moment: the rate on a 5-year ARM climbed to 5.98 percent last week, according to Reuters.

Experts recommend shopping around for mortgage rates anyway, something which can save borrowers between 0.50 percent and 1 percent on their mortgages, as Erin Sykes, chief economist, real estate adviser and real estate agent at Nest Seekers International, told CBS.

Contact Newsweek editors on this story: Matthew Robinson and James Debens