Five Million Households Hit as Mortgage Rates Peak

The Federal Reserve is expected to hold its key interest rate steady at approximately 3.9% when it concludes its two-day meeting on Wednesday.

This decision comes at a difficult moment for American consumers. The average 30-year mortgage rate climbed to 7.4% earlier this month, marking a three-year high. While the rate slipped to 7.32% last week, it remains well above the 6.2% level from a year ago. Oxford Economics estimates that these sharp increases have pushed home buying out of reach for another 5 million households.

The meeting is the fourth of Chairman Kevin Warsh’s tenure. He was appointed by President Donald Trump earlier this year, a selection that raised questions about the central bank’s independence. The timing is sensitive, occurring just six days before midterm elections that have been driven by affordability concerns, including soaring gas prices and elevated grocery costs.

Markets had initially priced in a quarter-point rate hike to 4.1% after inflation data came in hotter than expected last month. However, several top officials, including Vice Chair Philip Jefferson, downplayed the likelihood of an increase. Jefferson noted that longer-term rates had already shot higher in financial markets. He added, “my colleagues and I will need to come to our own judgment, which may take more time.”

Joseph LaVorgna, chief economist at SMBC Americas, suggested the central bank is hesitant to act before the vote. He stated, “The Fed doesn't want to poke the White House in the eye six days before an election.” This caution aligns with Warsh’s recent skepticism toward clear forward guidance, a practice he believes limits the Fed’s flexibility. Yet, speeches by other officials this month appeared to signal a hold, leading some economists to question if the chairman endorsed their messaging.

Independence remains a focal point. Warsh defied Trump’s preference for rate cuts in September by raising rates, a move that alleviated some concerns. However, Trump recently renewed his efforts to remove Governor Lisa Cook from the board and described the committee as “hostile” and “political.” Warsh declined to comment on his communications with the president at last month’s news conference, leaving his independence open to debate.

The Fed will likely see some dissent this week. Beth Hammack of the Cleveland Fed and Lorie Logan of the Dallas Fed are expected to vote in favor of a rate hike. Both officials have argued that the current rate is insufficient to cool the economy. Inflation has not hit the 2% target for a single calendar quarter since late 2020, with diesel fuel costs reaching an all-time high of $6.53 in late September before settling at $6.35.