Find out what a new jump in the consumer price index means for the mortgage market
The US’s average inflation rate rose to 3.7% in September, increasing the odds of a Federal Reserve rate hike this month as soaring gas prices pushed the consumer price index higher.
Labor Department data released Wednesday showed inflation continuing to rise above the central bank’s 2% target, sparked mainly by fuel cost increases as the war on Iran rumbles on.
With Fed decisionmakers scheduled to meet on October 27-28 for their next deliberation on interest rates, experts say the latest inflation reading keeps a second consecutive hike firmly on the table.
A 25-basis-point hike – which would follow a quarter-point increase when the Fed last met – could have significant consequences for mortgage holders and shoppers.
“For prospective homebuyers, the hotter-than-expected reading raises the likelihood of another Federal Reserve rate hike in October, potentially delaying much-needed mortgage-rate and affordability relief,” First American senior economist Sam Williamson said.
“Before the report, markets largely expected the central bank to wait until December for its next rate hike, following its first increase in three years last month. With both headline and core inflation exceeding forecasts, policymakers may instead move that hike forward to October.”
Even a rate increase this month mightn’t be the Fed’s last move of the year, Williamson added – though that will depend, he said, on incoming economic data.
No good news for mortgage rates as inflation rises again
Mortgage rates don’t move in lockstep with the Fed’s rate decisions, but expectations of central bank moves can push yields – and mortgage borrowing costs – higher.
Average 30-year mortgage rates have already jumped well above 7% because of surging Treasury yields in recent months, a product of bond market trepidation about the inflation outlook and war in Iran.
The Mortgage Bankers Association (MBA) has projected two more 2026 rate hikes by the Fed, while minutes of the central bank’s last meeting also indicated Federal Open Market Committee (FOMC) members see more increases in store.
“For prospective homebuyers, [a hike] could keep mortgage rates elevated for longer as investors adjust to the prospect of more persistent inflation, pushing meaningful affordability relief further out,” Williamson wrote.
“Elevated rates also reinforce the lock-in effect, limiting housing inventory and slowing home sales. Rising incomes and cooling house prices are helping buyers gradually regain purchasing power, but high borrowing costs continue to erode some of those gains.”
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