After pausing in June, the Fed hikes rates again 

The Federal Reserve today boosted the federal funds rate by 25 basis points, a sign that the board is determined to do what it takes to further tame inflation.

The rate hike — the 11th since March 2022 — puts the benchmark rate in the 5.25-5.5% range. It's the highest level since 2001 and may keep mortgage interest rates elevated for the short term. Freddie Mac's most recent weekly survey pegged the 30-year fixed-rate at 6.78%, although the latest numbers from Mortgage News Daily show rates above 7%.

"Looking ahead, we will continue to take a data-dependent approach in determining the extent of additional policy firming that may be appropriate," said Federal Reserve Chair Jerome Powell in a press conference after the announcement, noting that the Fed will continue to make decisions meeting-by-meeting.

Powell said the board would consider another rate hike when it meets again in September, but "it's also possible that we would choose to hold steady."

The rate hike cements the idea that the Federal Reserve is set on bringing inflation, currently at 3%, down to the 2% target, said Danielle Hale, chief economist at Realtor.com. Based on recent trends, the inflation rate could be back at 2% by the first half of 2024.

"At the same time, I expect Chair Powell to insist that the Fed remains vigilant, which will likely mean that rates remain high for a bit longer, just in case this reading turns out to be an aberration," Hale said.

Mortgage rates should trend down — barring future hikes

In the meantime, higher rates will likely keep homebuying activity sluggish as low inventory continues to put pressure on prices. It's a particularly challenging situation for first-time homebuyers as existing homeowners hold onto their below-market mortgage rates, said Ruben Gonzalez, chief economist at Keller Williams.

"If we see mortgage rates trend down, consistent with inflation returning to target levels, it should remove substantial friction from real estate markets," Gonzalez said.

If the Fed chooses to pause future hikes, Gonzalez said rates should start trending over the remainder of the year.

"However, we expect rate volatility to remain high and the trend lower to be slow. We could see rates move toward 6% by year-end," Gonzalez said.

Pausing rate hikes is not a certainty, however, and Fed actions during the second half of the year could continue to impact the housing market, said Lisa Sturtevant, chief economist at Bright MLS. Sturtevant is concerned that if the Fed opts for another rate hike later this year, there is a real risk they will overshoot and send the economy into a recession.

"Rising unemployment rates and job losses is the biggest risk to the housing market, which has so far been extremely resilient in the face of higher rates," Sturtevant said.