Mortgage Rates Increase as Inflation Concerns Mount Before Fed Meeting

Mortgage rates increased this week due to several converging factors, with inflation serving as the primary driver.

The average rate on a 30-year fixed-rate mortgage rose six basis points to 6.74% APR for the week ending September 10, based on data provided to NerdWallet by Zillow. (A basis point represents one one-hundredth of a percentage point.) Our weekly average is calculated using daily APRs recorded over the past five business days.

Markets are currently anticipating the latest Consumer Price Index, an inflation report from the U.S. Bureau of Labor Statistics scheduled for release on September 11. Although this is a routine monthly report reflecting August data, it carries significant weight. The Federal Reserve is set to meet on September 15-16, and if consumer inflation exceeds the Fed’s 2% target, markets will likely become even more convinced that the central bank will raise its benchmark interest rate to curb inflation.

According to CME FedWatch, markets currently anticipate approximately a 70% probability of a quarter-point rate hike.

A Robust Job Market Provides the Fed With Leeway to Raise Rates

As the conflict in Iran drives energy prices higher, elevated inflation appears increasingly likely. Economists forecast that the August CPI report will show annual inflation holding steady near July’s 3.4% rate. However, surprises remain possible. Notably, the latest Bureau of Labor Statistics jobs report revealed that total employment grew by 162,000 in August—triple the expectations of economists.

Had the job market appeared weak, the Fed might have been more hesitant to raise rates. Currently, it has additional breathing room to act.

“We know that the committee is teetering between continuing to hold the funds rate steady and hiking a quarter of a percentage point,” says NerdWallet lending expert Kate Wood. “Exactly how much the rate of inflation changed in August could easily push the vote one way or the other.”

While the Fed does not directly set mortgage rates, its decisions shape the broader lending market. Mortgage rates typically rise or fall in anticipation of the Fed’s next move, though predicting this has become increasingly difficult under Federal Reserve Chair Kevin Warsh. Nevertheless, mortgage markets have been pricing in a likely rate hike this week.

For prospective homebuyers, this suggests continued upward pressure on mortgage rates before any meaningful relief materializes.

Bond Market Skepticism Persists

When inflation appears likely to persist, bond investors generally demand higher yields to compensate for the purchasing power that inflation erodes. Since market forces often push mortgage rates in the same direction as Treasury note yields, this dynamic translates to higher borrowing costs for homebuyers.

Compounding the issue, the Treasury Department announced this week that it will increase its long-term bond buybacks to $6 billion per operation this quarter—tripling the originally planned amount. While bond buybacks can theoretically alleviate upward pressure on yields, investors were not reassured. Broader concerns regarding government borrowing and persistent inflation continue to weigh on the bond market.

Understanding the mechanics of a Treasury buyback is unnecessary to grasp the broader picture: Bond markets have been volatile recently, and homebuyers should expect mortgage rates to remain equally unpredictable.

August’s CPI Puts the Fed to the Test

Given the current and anticipated inflationary pressures, will the Fed raise rates next week?

August’s jobs report demonstrated unexpected economic resilience, but rising energy prices and a skeptical bond market present significant challenges for the Fed’s upcoming decision.

The August CPI report serves as another critical metric for evaluation, yet it is unlikely to single-handedly resolve the Fed’s dilemma.

For those hoping to purchase a home this fall, do not expect mortgage rates to become cheaper anytime soon. If you are currently shopping, focus on the rate you can actually secure rather than attempting to predict the Fed’s actions. Compare offers from at least three lenders, and evaluate the monthly payment to determine how much house you can afford. Should rates eventually ease, refinancing may provide another opportunity to secure a lower rate in the future.

About the author

Abby Badach Doyle has been writing about homeownership and mortgages for NerdWallet since 2022. Her work has been featured in outlets including The Associated Press, The Washington Post and The Seattle Times. From interactive tools to practical advice, Abby is dedicated to making the homebuying journey less stressful, particularly for first-time buyers.

As a reporter, she focuses on innovative housing solutions, such as co-living, and personal stories about how homeownership builds community and a sense of belonging.

Abby is also a musician, songwriter, and producer who understands the challenge of balancing creative fulfillment with financial stability. In 2024, she produced a special episode of NerdWallet’s “Smart Money” podcast on navigating income swings in a creative career.

Abby is based in Pittsburgh, a city defined by working-class grit and neighborly spirit. When she is not writing about personal finance, she is at her urban homestead: playing fiddle, raising chickens, and preserving the bounty from her garden.

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