Mortgage rates in the U.S. are surging upward as high inflation is expected to push the Federal Reserve into hiking rates more rapidly than anticipated just a few days ago.
The average for a 30-year loan jumped to 6.18 percent from 5.44 percent last week, data from Mortgage News Daily show.
The Federal Reserve began a two-day policy meeting on Tuesday and is scheduled to announce its decision on interest rates on Wednesday at 2 p.m. The market-implied odds of a 75 basis point hike have soared to 90 percent, up from just 4 percent a week ago.
This rapid shift in expectations has come after Friday brought news of record high inflation in the Consumer Price Index and rising inflation expectations in the University of Michigan’s survey of consumers. On Monday, the Federal Reserve Bank of New York released its survey of consumers for May. This also showed rising inflation expectations. The Producer Price Index released Tuesday showed inflation accelerating on a month-to-month basis.
The Federal Reserve does not directly control mortgage rates. Instead, it targets the overnight lending rate for banks and pays interest on overnight reserve levels. Longer-term interest rates reflect the expected path of short-term rates over time. Mortgage rates, in turn, tend to reflect the direction of long-term rates, especially the yield on 10-year Treasury bonds. The yield on the 10-year has jumped from 2.97 percent a week ago to 3.45 percent today.
This is the first time in over a decade that mortgage rates have been this high.