When you come across news about the housing market, you might stumble upon something about the Fed, which stands for the Federal Reserve. Now, I know you're probably wondering, how does this decision actually impact you and your plans to buy a home? Well, let me break it down for you. Here's what you need to know.

The Fed really wants to bring down inflation. They've been working at it, and I gotta say, there have been 12 months in a row now where inflation has slowed down (you can check out the graph below). But here's the kicker, the latest data tells us that inflation is still higher than the magic number the Fed is aiming for - 2%.

You know, a lot of us were really hoping that the Fed would chill out a bit on the interest rate hikes. They've been doing a pretty solid job of bringing down inflation, but they don't want to stop too soon and end up with prices shooting back up again. So guess what? Last week, they decided to jack up the Federal Funds Rate once more. According to Jerome Powell, the bigwig in charge at the Fed, it's all about finding that balance.

““We remain committed to bringing inflation back to our 2 percent goal and to keeping longer-term inflation expectations well anchored.””

— Jerome Powell, Chairman of the Fed

““Inflation remains stubbornly high. The economy has been remarkably resilient, the labor market is still robust, but that may be contributing to the stubbornly high inflation. So, Fed has to pump the brakes a bit more.””

— Greg McBride, Senior VP, and Chief Financial Analyst at Bankrate

““The federal funds rate is an interest rate that banks charge other banks when they lend one another money . . . When inflation is running high, the Fed will increase rates to increase the cost of borrowing and slow down the economy. When it’s too low, they’ll lower rates to stimulate the economy and get things moving again.””

— Fortune

When the Fed decides to increase the Federal Fund Rate, it doesn't exactly tell mortgage rates what to do, but it does make an impact.

How All of This Affects You

In simpler terms, when inflation is on the rise, mortgage rates also go up. However, if the Federal Reserve manages to reduce inflation, it could eventually result in lower mortgage rates. This means that buying a home could become more affordable for you.

This graph here actually shows that when inflation goes down, mortgage rates tend to go down as well. Take a look at the graph below to see for yourself.

So check it out, the data up there tells us that inflation, represented by that blue trend line, is starting to go down little by little. And you know what's interesting? Based on how things have gone in the past, it's likely that mortgage rates, which you can see by that green trend line, will also drop. Pretty cool, huh?

““With the backdrop of easing inflation pressures, we should see more consistent declines in mortgage rates as the year progresses, particularly if the economy and labor market slow noticeably.””

— McBride

Bottom Line

If inflation starts to calm down, you can expect mortgage rates to drop as well. It's a pretty straightforward cause-and-effect situation. If you're wondering what all of this means for you and your housing situation, you should definitely lean on a reliable and trustworthy real estate professional. They'll have the knowledge and expertise to guide you through any changes in the housing market and help you navigate it all. So, don't hesitate to reach out to someone you can count on.