Mortgage rates increased this week as market sentiment hardened around the prospect of a Federal Reserve interest rate increase, with the average 30-year fixed-rate mortgage climbing 11 basis points to 6.68% APR for the week ending September 3, according to data provided to NerdWallet by Zillow.
Several key factors are driving this upward movement. Escalating tensions in the Iran conflict have reignited concerns about oil prices and inflation, pushing bond yields higher. Since mortgage rates tracks the yield on the 10-year Treasury note, they moved in tandem with these increases. However, rates were already trending upward before recent geopolitical developments introduced additional uncertainty.
The catalyst for this week’s surge came from Federal Reserve Chair Kevin Warsh’s remarks at the Jackson Hole symposium, where he signaled a more hawkish stance on monetary policy. His emphasis on using short-term interest rates as the primary tool to achieve the Fed’s dual mandate of price stability and maximum employment has led markets to price in a significantly higher probability of a rate hike at next month’s Federal Reserve meeting.
Fed Policy Path Becomes Clearer
Warsh’s comments at the annual gathering in Wyoming provided crucial insight into the Fed’s likely trajectory. While he did not explicitly commit to a September hike, his focus on inflation targeting and preference for short-term rate adjustments over other policy tools has shifted market expectations. The CME Group’s FedWatch tool showed the probability of a 25-basis-point increase immediately jumping from approximately 30% to over 60% following his speech.
Although Fed governers have since expressed some reservations about moving rates immediately, the consensus remains that a September hike is now more likely than not. Even without an actual Fed decision, mortgage lenders typically factor anticipated policy changes into their pricing, which helps explain the rapid rate increases observed after Warsh’s remarks.
Mortgage rates don’t directly track the Federal Reserve’s funds rate, but they are heavily influenced by it. The connection to 10-year Treasury yields means that expectations around Fed policy ripple through to mortgage pricing, creating the current environment of elevated rates and increased volatility.
Labor Market Data Could Influence Fed Decision
The upcoming August jobs report from the Bureau of Labor Statistics will provide critical context for the Fed’s September meeting. Analysts are particularly focused on whether July’s disappointing employment figures—where the economy lost 23,000 jobs versus the expected gain of 83,000—represent an isolated incident or the beginning of a broader trend.
The data will help determine whether the Fed should prioritize tightening policies to combat inflation or easing to support the labor market. A weak August report could strengthen arguments for holding rates steady, while continued employment weakness might prompt consideration of rate cuts. The third option—maintaining current rates—remains on the table as policymakers seek additional clarity on economic direction.
Persistent challenges in the labor market add complexity to the Fed’s decision-making process. While inflation remains the primary concern, the central bank cannot ignore the employment component of its dual mandate, making September’s data particularly pivotal for future policy moves.
Rate Volatility Across Lenders
Despite the current averages, borrowers are encountering significant variation in available rates. Shopping across multiple lenders reveals spreads of up to 65 basis points on 30-year fixed mortgages, even after accounting for discount points that reduce rates in 25-basis-point increments.
Advertised rates starting at 7% APR typically apply to premium borrowers with excellent credit scores and strong loan-to-value ratios who are using discount points to secure lower rates. Prospective borrowers with less favorable financial profiles are likely seeing offers well above this threshold. The wide dispersion in quoted rates underscores the importance of comprehensive lender comparison, as research indicates that even modest rate differences can result in substantial savings over the life of a mortgage.
Whether purchasing or refinancing, borrowers should obtain multiple quotes to ensure they’re securing competitive pricing. Market conditions combined with individual credit profiles create opportunities for significant cost savings through diligent shopping.
About the author
Kate Wood is a lending expert and certified financial health counselor (CHFC) who joined NerdWallet in 2019. With an educational background in sociology, Kate feels strongly about issues like inequality in homeownership and higher education, and relishes any opportunity to demystify government programs. Prior to NerdWallet, she wrote about home remodeling, decor and maintenance for This Old House.