Charleston Lowcountry waterfront at sunrise with Mortgage Rate Watch and Fed Decision Week headline

Fed Decision Week: What GDP and Inflation Could Mean for Mortgage Rates

The Federal Reserve takes center stage this week, but Wednesday’s interest-rate decision is only part of the story. Thursday brings the first estimate of third-quarter economic growth, consumer spending and the Fed’s preferred inflation measurement—all at the same time.

The Quick Take

The Fed is widely expected to leave its benchmark rate unchanged Wednesday. Because that decision is already anticipated, mortgage rates may react more to what Fed Chair Kevin Warsh says about December—and to Thursday’s GDP and PCE inflation reports.

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Where Mortgage Rates Stand

Freddie Mac’s latest weekly survey put the average 30-year fixed mortgage rate at 7.32% as of October 22, down from 7.40% the previous week. The average 15-year rate declined from 6.71% to 6.68%.

These are national survey averages rather than individual rate quotes. The actual rate available to a borrower depends on credit, down payment, property type, loan program, points and several other factors.

The 10-year Treasury yield was near 4.99% Monday morning. Mortgage rates do not follow the 10-year Treasury perfectly, but the two generally move in the same direction. The modest decline in yields offers some relief, although borrowing costs remain elevated.

Why an Expected Fed Pause Can Still Move Mortgage Rates

The Federal Reserve raised its benchmark rate in September to a target range of 3.75%–4.00%. Markets now overwhelmingly expect policymakers to leave that range unchanged at this week’s meeting.

That does not mean mortgage rates will simply sit still Wednesday.

The Federal Reserve does not directly set fixed mortgage rates. Mortgage pricing responds to Treasury yields and mortgage-backed securities, which reflect investors’ expectations for future inflation, economic growth and Fed policy.

Since a Fed pause is already expected, markets will focus on the language surrounding the decision and Chair Kevin Warsh’s press conference. A patient message could help stabilize longer-term rates. A stronger warning about inflation or another possible increase in December could push Treasury yields and mortgage rates higher.

Monday, October 26: A Quiet Beginning

No major rate-sensitive economic reports are scheduled Monday.

What it means for mortgage rates: A quiet calendar does not guarantee quiet rates. Bond markets can still react to geopolitical developments, energy prices and investors adjusting positions before Wednesday’s Fed announcement.

Tuesday, October 27: Business Spending, Housing and Consumers

  • September Durable Goods Orders at 8:30 a.m. Eastern
  • August Case-Shiller Home Price Index at 9 a.m. Eastern
  • September New Home Sales at 10 a.m. Eastern
  • October Consumer Confidence at 10 a.m. Eastern
  • Federal Reserve meeting begins

Current forecasts call for Durable Goods Orders to rise approximately 1.2% after being unchanged in August. New Home Sales are expected to ease from an annualized pace of 684,000 to approximately 655,000. Consumer Confidence is expected to edge down from 81.9 to around 81.2.

Those figures are forecasts and may change before the reports are released.

What it means for mortgage rates: Strong business spending, home sales and consumer confidence would suggest the economy remains resilient despite higher borrowing costs. That can place upward pressure on Treasury yields. Weaker results would be more supportive of the economic-cooling argument.

Wednesday, October 28: The Federal Reserve Decision

  • Federal Reserve policy statement at 2 p.m. Eastern
  • Fed Chair Kevin Warsh’s press conference at 2:30 p.m. Eastern

The Fed is widely expected to maintain its target rate at 3.75%–4.00%. Investors will therefore pay close attention to how policymakers describe inflation, employment and the possibility of another increase in December.

What it means for mortgage rates: A rate hold does not automatically mean mortgage rates will improve. If the Fed sounds more concerned about inflation or hints that another increase is likely, mortgage rates could move higher. A patient message would be more favorable for the bond market.

Thursday, October 29: GDP and the Fed’s Preferred Inflation Report

  • Advance estimate of third-quarter GDP at 8:30 a.m. Eastern
  • Personal Income and Consumer Spending at 8:30 a.m. Eastern
  • PCE and Core PCE Inflation at 8:30 a.m. Eastern
  • Initial Jobless Claims at 8:30 a.m. Eastern

Current consensus forecasts call for third-quarter economic growth near a 3.2% annualized pace, compared with 2.2% during the second quarter.

Consumer spending is expected to increase approximately 0.6%, while personal income is expected to rise approximately 0.3%.

Headline PCE inflation is expected to increase approximately 0.5% for the month and roughly 3.7% over the past year. Core PCE, which removes volatile food and energy prices, is expected to rise approximately 0.3% for the month and 3.1% annually.

What it means for mortgage rates: Strong growth combined with hotter inflation could increase expectations for another Fed rate increase and place upward pressure on mortgage rates. Softer inflation, slower consumer spending or weaker economic growth would generally be better received by the bond market.

Friday, October 30: The Cost of Employment

  • Third-quarter Employment Cost Index at 8:30 a.m. Eastern
  • Chicago Business Barometer at 9:45 a.m. Eastern

The Employment Cost Index is expected to rise approximately 0.8% for the quarter after increasing 0.9% previously.

What it means for mortgage rates: Wages and employee benefits make up a significant portion of business expenses. Stronger labor-cost growth can contribute to persistent inflation, while slower growth could give the Fed more room to remain patient.

Jared’s Take

This week is a good reminder that the Fed’s decision and mortgage rates are not the same thing.

A Fed pause is expected, but mortgage rates may still move quickly if the Fed’s message changes expectations for December. Thursday’s combination of GDP, consumer spending and PCE inflation could then either confirm that message or send the market in a different direction.

If you are buying, refinancing or deciding whether to lock a rate, the best strategy is not to gamble on one report. It is to understand your payment, compare the available options and decide how much market risk fits your situation.

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Have questions about what this week’s news could mean for your plans? Reach out anytime. I’m happy to help you look at the numbers without the pressure or hype.