Divided Fed holds rates steady as investors bet on December hike 

With the Federal Reserve holding steady on short-term interest rates at its Oct. 27-28 meeting, many economists are expecting mortgage rates to stay elevated as the possibility of a future rate hike remains on the table for December.

Divided Fed votes to leave rates unchanged: The Federal Open Market Committee (FOMC) voted 10-2 on Wednesday to keep the federal funds rate at 3.75% to 4%, noting in a news release that it wants an "accumulation of more information" before deciding its next steps.

Committee members Lisa Cook and Beth Hammack were the two dissenting votes. Both preferred to raise rates by 25 basis points, the central bank said.

Mortgage rates change little: Prior to the Fed's rate decision, mortgage rates were staying relatively unchanged this week, holding steady on Monday and Tuesday. The 30-year fixed-rate mortgage rate did tick up slightly — to 7.35% — after the central bank's announcement, according to Mortgage News Daily.

Staying the course to 'get monetary policy right': Federal Reserve Chair Kevin Warsh reiterated the FOMC's desire for more data — particularly on inflation — in a Wednesday press conference.

"The information we receive over the coming period will help us determine where we want policy to be, and at every turn, good or bad, our job is to get monetary policy right and that's exactly what we're doing," Warsh said.

Inflation, midterms likely shaped Fed's decision: For now, the central bank is "watching how the September rate hike affects inflation" following last month's 3.7% annual rise in consumer prices, according to Melissa Cohn, regional vice president of William Raveis Mortgage. "While they held rates steady today, the Fed is very likely to raise rates in December if inflation hasn't improved."

Despite the hot September inflation report, the FOMC may have been reluctant to raise rates with just a few days remaining before the 2026 midterm elections, Cohn added, noting, "the Fed doesn't want to appear political."

Investors betting on a December rate increase: Investors appear to be anticipating two or three more rate hikes in the next six to eight months — more than the Fed has projected, according to Danielle Hale, chief economist at Realtor.com. Before the Fed's September meeting, the central bank hadn't raised interest rates since July 2023.

Following the Fed's Oct. 28 announcement, the CME Group's FedWatch tool indicated investors believed the chances of a quarter-point rate hike was 84.6%, up from 78.3% one day earlier.

"Those hoping to make a home purchase in the months ahead should plan for further mortgage rate volatility," Hale said.