Are interest rates going to continue to increase in 2023? What’s the 30-year fixed-rate mortgage now?

High inflation has been a fact of life for Americans throughout the past year, pushing up prices and putting the squeeze on household finances. The Federal Reserve has implemented a series of interest rate hikes to cool inflationary pressures, but how successful have they been?

The United States economy is undoubtedly showing signs of progress when it comes to tackling inflation. The monthly Consumer Price Index (CPI) report for January showed that the inflation rate has fallen in recent months.

Last June the annualised inflation rate peaked at 9.1%; earlier this month the Bureau of Labor Statistics found that it had dropped to 6.4% in January. This represents significant improvement but remains far higher than the Fed’s target of 2% inflation.

The central bank is therefore expected to enact further interest rate hikes during 2023, particularly given the strong January jobs report. Experts at Goldman Sachs and Bank of America have predicted that the Fed will increase interest rates another three times this year.

The Federal Reserve’s target interest rates are currently at 4.50-4.75%, the highest level since 2007.

How will mortgage rates change in 2023?

The Federal Reserve is tasked with providing stable conditions for the US economy and is utilising its power to adjust interest rates to cool inflation. But what does an ‘interest rate hike’ actually involve?

The Fed sets the federal funds rate, which is the rate at which the Federal Open Market Committee (FOMC) recommends that commercial banks charge each other interest. Alterations to this do not specifically affect consumers but banks almost always adjust their own interest rates to reflect the FOMC advice. Typically, banks’ prime rates for customers is 3 percentage points higher than the federal funds target rate.

With financial experts predicting another three interest rate hikes in 2023, home-owners should anticipate further increases on their monthly mortgages repayments in the coming months.

What is the interest rate on a 30-year fixed-rate mortgage?

On 16 February the average interest on a 30-year fixed-rate mortgage was at 6.32%, a slight increase on the figure of 6.12% recorded the week before. Despite this change analysts expect that mortgage rates will increase again this year.

George Ratiu, Realtor.com’s director of economic research, wrote in a statement: “With the Fed committed to monetary tightening until inflation is decidedly moving toward 2%, borrowing costs will remain elevated, keeping housing affordability at the top of the year’s list of challenges.”

The Fed has indicated that interest rate increases will continue until inflation falls to 5.25-5.50%. Until that point, expected mortgage rates to continue to rise accordingly.