You may have noticed that mortgage rates have moved higher over the past week. Depending on the lending product, you may have seen a five-to-10 basis point increase in the rate quoted this week compared to the rate quoted the prior week.

What’s going on?

Last Wednesday, the Federal Reserve released the minutes of the latest meeting of its chief policy makers. It appears that talk of raising interest rates has been amplified. The minutes show that there was a strong bias among the 17 participants for a June hike (June 15 is the next meeting) in the federal funds rate if the conditions warrant it. A few of the participants were even ready to raise the federal funds rate last month.

We frequently turn to futures traders to gauge what the market anticipates. As of now, traders in federal funds rate futures contracts are pricing the contracts for a 37.5% chance of a rate hike next month. These same traders are pricing a 61% chance the hike will occur in July if it doesn’t occur in June.

As for us, we still think that it’s more likely the Fed won’t raise rates. Economic growth remains sluggish. We don’t think the Fed will want to risk derailing the one reliable growth engine – housing. What’s more, the more dovish policy makers continue to cite downside risks to the economy and downside risks to their inflation target.

That said, we are a minority opinion. Many market watchers are concerned that the Fed is preparing for a rate hike. This could create rate volatility and raise the pressure for higher mortgage rates over the next few weeks.

Float or lock? All we can say is that locking wouldn’t necessarily be a bad idea.

Information provided by Jessica Regan.

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