Powell's recent comments suggest a December rate cut is uncertain, raising housing market concerns.
Since mortgage rates began to spike in 2022, people looking to buy and sell homes have closely watched the Federal Reserve -- both in its actions regarding monetary policy and in its words that often signal its thinking about future plans.
The reason is that there is a correlation between interest rates and mortgage rates and whether they are high or low.
Take 2022 as an example. The Federal Reserve Bank of Dallas found that interest rate increases contributed to higher mortgage rates that year.
"The Federal Reserve aggressively tightened monetary policy in 2022, responding to high and persistent inflation," it wrote. "The resulting borrowing cost increase for households and firms was generally anticipated. However, fixed-rate mortgage interest rates were especially sensitive to the policy regime change."
"We find that interest rate volatility and the unique nature of mortgage instruments were important contributors to last year's outsized mortgage rate moves," the Dallas bank added.
Redfin reports mortgage rate change, predicts future movement
On Oct. 29, the Federal Open Market Committee (FOMC) cut the federal funds rate by 25 basis points to a range of 3.75% to 4%.
This reduction in interest rates was widely anticipated and had already been factored into mortgage pricing, which has been gradually declining over the past few months. Many analysts had also included in their expectations an additional rate cut in December.
In response, the average interest rate for 30-year fixed mortgages declined to 6.17% for the week ending Oct. 30, their lowest in more than a year.
But Redfin suggested that comments Fed Chair Jerome Powell made on Oct. 29 signaled concern for the near future.
"Mortgage rates will tick up after Fed Chair Powell sent a strong signal that a December rate cut -- that markets have already priced in -- is far from a foregone conclusion," the real estate technology company predicted.
Redfin's head of economics research Chen Zhao suggested that Powell's remarks were an apparent effort to adjust expectations for the final meeting of the year, citing the government shutdown's impact on the availability of market data (particularly labor market data).
"Chair Powell's press conference remarks make it clear that many on the Federal Open Market Committee (FOMC) view not cutting as the safer course of action in the face of higher uncertainty," Zhao wrote.
Fed interest rate hikes and mortgage rate reaction
In 2022 and 2023, the Fed increased interest rates from 0.25% to more than 5%, and mortgage rates climbed from 3.22% to 7.79% in response.
Federal Reserve interest rate increases
* In March 2022, the Fed began raising rates from a near-zero level (0.25%) with a 0.25 percentage point hike.
* By December 2022, the federal funds rate had reached approximately 4.25%-4.5%, after seven consecutive hikes throughout the year.
* In 2023, the Fed continued tightening, peaking at around 5.25%-5.5% by mid-year, marking the highest level in more than two decades.
Corresponding mortgage rate increases
* In January 2022, the average 30-year fixed mortgage rate was about 3.22%.
* By October 2022, mortgage rates had surged to around 7.08%, reflecting the Fed's aggressive rate hikes.
* In October 2023, mortgage rates hit their highest point of the cycle at 7.79%, closely tracking the peak in federal interest rates.
Note that when the Fed raised rates by roughly 4.75 percentage points from early 2022 to mid-2023, mortgage rates increased by about 4.5 percentage points, from 3.22% to 7.79%.
This close alignment shows that mortgage rates are highly sensitive to Fed policy, even though they are not directly tied to the federal funds rate.
Now that interest rates have decreased in recent months, mortgage rates also came down, but analysts worry that the short- and long-term outlook remains uncertain.
Economists and mortgage rate analysts are closely monitoring these trends and helping buyers and sellers of homes understand their implications.