Tracking the Fed: When Should We Expect the Next Rate Hike?

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The Federal Reserve Open Market Committee’s (FOMC) September meeting went as expected. The central bank group opted to forgo a hike in its benchmark rate this month—the first time in the last 12 meetings—instead, keeping its rate at the current target range of 5.25% to 5.5%. 

That was good news for investors, who have had to deal with the resulting higher mortgage rates for the better part of a year now. Since the Fed started increasing its benchmark rate back last March, the average mortgage rate has jumped from under 4% to the 7.19% it is today, significantly increasing borrowing costs for anyone buying real estate.

Still, while the Fed didn’t raise rates this time around, that doesn’t mean they won’t in the future—especially with two more meetings on the bank’s docket this year.

What can you expect for interest rates moving forward? Here’s what Fed Chair Jerome Powell and Co. have indicated.

What the Fed’s Saying

The Fed has been trying to reach that magic 2% inflation rate for a while now, and so far, it’s made some progress. Since beginning rate hikes in March 2022, the country’s inflation rate has fallen from over 9% to 3.7% as of August.

“Since early last year, the FOMC has significantly tightened the stance of monetary

policy,” Fed Chair Jerome Powell said in a press conference. “We have raised our policy interest rate by 5.25 percentage points and have continued to reduce our securities holdings at a brisk pace. We have covered a lot of ground, and the full effects of our tightening have yet to be felt.”

That last part is key because economic indicators—and the moves the Fed makes based on them—tend to lag, so the FOMC can’t really judge how well it’s doing until a few months down the road. For this reason, the Fed is taking things slow—making small rate hikes, letting the data trickle in, and then reanalyzing from there. Powell has even said the FOMC is going to take things “carefully” going forward.

“Given how far we have come, we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks,” Powell said. “We will continue to make our decisions meeting by meeting, based on the totality of the incoming data and their implications.”

What Will the Fed Do Next?

So we know the Fed is taking it slow—assessing the data and aiming to avoid any prolonged pain that higher interest rates could bring about. What could that approach look like over the next few months, though?

“The process of getting inflation sustainably down to 2% has a long way to go,” Powell said. “We are prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we are confident that inflation is moving down sustainably toward our objective.”

According to the FOMC’s latest projections, the majority of its members agree with Powell, believing further action is needed to hit that 2% rate. As shown in the projections table, 12 members believe we need a target rate of 5.5% to 5.75% by the end of this year—25 basis points higher than today’s rate—while seven think the current range is adequate.

The CME Group’s Fed Watch Tool, which uses investment activity to predict future rates, currently shows there’s a higher likelihood of a rate hike at the FOMC’s December meeting than its November one.

While all this is up in the air right now, it’s clear the Fed aims to keep rates fairly high for the foreseeable future. In 2024, 10 members say they’re eyeing a target rate of 5% or above, and nine see rates in the 4% to 5% range. Beyond that, the FOMC isn’t planning any significant rate drops until 2025 or later.

Case in point, a reporter asked Powell if today’s rates were “sufficiently restrictive” yet. 

As Powell put it, “We want to see convincing evidence, really, that we have reached the appropriate level. We’re seeing progress, and we welcome that. But we need to see more progress before we’ll be willing to reach that conclusion.”

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.