Mortgage Rates May Drop Despite Fed Rate Increase

This article was first published on NerdWallet.com.

The Federal Reserve raised a key interest rate one-quarter of a percentage point on Wednesday, the same level of an increase as in its previous meeting seven weeks ago. Repeating that small hike might not seem dramatic, but after a turbulent couple of weeks for the global economy, the 25-basis-point boost is a pretty big deal.

In early March, the economic data seemed to indicate a larger rate hike would be warranted at this month's meeting and Fed Chair Jerome Powell acknowledged the long road to lower inflation could be "bumpy." However, the economy hit some massive bumps days later, with two significant bank failures sowing chaos in the markets. In addition to prompting the Fed to recalibrate, the upheaval caused a stampede into bonds, which could push mortgage interest rates downward, even as the Fed continues to raise rates to quell inflation.

How the Fed's plan was knocked off course

Following a 25-basis-point increase at the January/February meeting, it seemed likely that the Fed would yank interest rates upward more decisively at the beginning of this month. That's because economic data kept showing the economy running hot and the rate of inflation remaining brisk....