The Fed just raised rates for the first time since 2023.
At its September 16 meeting, the Federal Reserve unanimously voted to hike its benchmark rate by 25 basis points, bringing the target range to 3.75%–4%.
For housing, the timing matters. Mortgage rates were already moving higher heading into the meeting, with the average 30-year fixed now above 7%. And while a Fed hike doesn’t automatically push mortgage rates higher, the message from Chair Kevin Warsh was that inflation is still the problem the Fed is focused on solving.
Here’s what the decision means for housing, mortgage rates and what comes next.
What the Fed Said About the Rate Hike
The Fed’s policy statement ran three short paragraphs, and the third was devoted entirely to inflation:
“Inflation remains elevated. Today’s policy action will support a timelier return to the Committee’s 2 percent goal. The Committee will deliver price stability.”
Warsh opened the press conference by describing an economy that’s speeding up, not slowing down, stating (1:15):
“Our decision comes at a time when the American economy appears to be strengthening: new hiring, private sector earnings, business capital investment. Each of these markers has improved in recent months and is pointing in a good direction. Credit flows have been robust, particularly for businesses, and as I said at the policy symposium in Jackson Hole, I would be hard pressed to describe broad financial conditions as restrictive. This view was widely shared by the committee, so we removed a dose of accommodation.”
The case for hiking came down to this (2:44):
“Yet for more than five years, inflation has been running above target. So our predominant focus is on the price stability side of our mandate, the plain fact is that inflation is too high, and has been for too long.”
With the jobless rate “low at around 4.1%” and the labor side of the mandate (in his words) “in good shape,” Warsh argued the Committee is free to point everything it has at prices.
For housing, though, the bigger question isn’t what happened to the fed funds rate. It’s what happens next to the 10-year Treasury and, down the line, mortgage rates.
What This Means for Mortgage Rates
The 10-year climbed to its highest level since 2007, just above 5%, before easing back below that line after today’s announcement.
Per Mortgage News Daily, the average 30-year fixed sits at 7.24% today, up another 5 basis points, after rising for six straight sessions through Tuesday to the highest levels since January 2025.
MND cautioned that a Fed hike “does not necessarily mean higher mortgage rates,” since expectations for the fed funds rate and longer-term mortgage rates have sometimes moved in opposite directions.
Warsh gave his longest answer of the day on exactly why long-term yields keep climbing, after Neil Irwin of Axios asked what the bond market was telling him (22:04):
“Longer-term bond yields are up quite a bit over the last few months, especially the last few weeks. What do you believe the bond market is telling you, especially about the growth outlook, the neutral rate, and what are the implications for monetary policy?”
Warsh’s response (22:17):
“Let me speak to the history. What bond market prices do prospectively…I want to let them do that. I want to let them tell me any story they wish to. I want to try to interrogate that. But why did yields rise? Let’s say since the last FOMC meeting till this, I’ll give you three three reasons. But I would say these things tend to be overdetermined. This is a complicated set of things that are affecting the most important asset anywhere in the world, the 10-year treasury. It’s the risk-free asset upon which every price of virtually every asset in the world is related to, so I’ll say three things.”
“First is economic strength. I mean, part of the reason why we’ve seen over the course of 2026 long-term yields go up is the economy is strengthened. Second reason, competition for capital, the surge in capital expenditures, which I referenced in my remarks, is real, and the so-called hyperscalers are out in the market raising funding, and so the competition for capital is real. And I think it partly explains the increase in yields. The third is geopolitics. The situation hotspots around the world are driving long-term yields.”
That gives us three things keeping pressure on long-term rates: a stronger economy, more competition for capital and geopolitical uncertainty. None of those disappears because the Fed moved rates by 25 basis points.
Edward Lawrence of FOX Business pressed on the same yields, asking whether the Fed was simply following a bond market that had already priced in the hike. (9:17):
“So the market priced in a 90% chance of a rate hike today. You don’t want the Fed to lead the markets. Was this a market-led rate hike and then with that the bond yields are going up? That’s one of the indicators. Is debt part of that issue?”
Warsh’s response (9:34):
“So I’ve said this before, I’ll repeat it. The Fed has an enormous amount of power. These are decisions we make. But getting the understanding right between financial markets and the Fed is a balance that I’ve long thought could be better struck. We made this decision today, based on our assessment of the situation, based on our assessment of the trajectory for employment, based on our judgment on the strength of the economy. Sometimes the market tries to prejudge our outcomes. I’ll observe market prices and see what they have to say, but today was our decision.”
The Housing Affordability Question
The only question that touched on housing affordability came from Brian Cheung of NBC News, when he asked Warsh who he means by the least well off (17:34):
“…what does a rate hike do when those people might be pinched by higher mortgage rates, higher gas, higher grocery prices…”
Warsh’s response (17:47):
“Yeah, it’s a fair question. In the macroeconomics, we tend to look at aggregates around here, aggregate GDP, overall labor market trends, the state of inflation. A lot of people in Washington spend a lot of time on distributional consequences, and that’s their job in their business. What I was referring to in the least well off tend to be people that don’t own financial assets. Call that a bit less than 50% of the country, they don’t have equity in their home, they don’t have equity in a 401(k) plan, so they’re living off their paycheck that comes every couple of weeks.”
“The thing that we can do, consistent with our mandate, is two things. Ask ourselves, is the country running more or less at full employment? And we’ve done that. That doesn’t mean that individuals aren’t searching for a job, but in aggregate, we’re running more or less at full employment. So, we can then look at the other side of the mandate and let that be our focus.
“And stable prices, an environment where inflation is running consistent with our 2% objective, offers good news because that way, when they get their wages, they can put their head above water and deliver real take-home pay increases. We don’t have total responsibility for it, but we do have responsibility for stable prices. As I’ve said before, inflation is a choice.”
In other words, the Fed isn’t trying to make mortgages cheaper right now. Its argument is that getting inflation under control ultimately matters more for household purchasing power, even if higher borrowing costs hurt in the meantime.
The Limits of What a Rate Hike Can Do
Of course, some of the inflation the Fed is fighting isn’t something interest rates can fix. Richard Escobedo noted that a quarter-point hike “does not reopen the Strait of Hormuz,” then asked how smaller hikes can address supply-side inflation.
Warsh’s response (7:39):
“It’s a good question, Richard. We cannot affect any individual price, whether it be oil prices, whether it be foodstuffs at the grocery store. But what we can do and will do is ensure that any change in relative prices don’t broaden out, don’t have second and third order effects in the economy. That’s what we’re tasked to do and that’s what we will do.”
Jennifer Schonberger of Yahoo Finance asked whether beating inflation now requires damaging the job market.
Warsh’s response (27:43):
“First, we believe that the unemployment rate is basically running consistent with full employment. I don’t believe that we need to do harm to the labor markets to achieve our objective. I don’t believe that the two parts of our mandate price stability and full employment are working at cross purposes over the medium term.”
No Forward Guidance and a 2029 Problem
So when do rates come back down? Warsh gave markets almost nothing to work with. And the Fed’s own projections show that inflation isn’t expected to fully return to 2% until 2029.
Asked by Colby Smith of The New York Times whether one hike means a sequence of hikes, Warsh shut the door.
Warsh’s response (8:30):
“This won’t surprise you. I’m not in the forward guidance business. The decision we made today was a sober decision, serious decision, responsible decision, one that we have been preparing for and thinking about in my 110 or [1]20 days here. You heard from other people in the dots effectively what their forecasts are. I’m not going to prejudge any future decisions we make.”
He wouldn’t engage on the neutral rate either. Steve Liesman of CNBC asked where the funds rate sits relative to neutral, and whether Warsh thinks in terms of a short-run and long-run neutral rate (14:24).
Warsh’s response (14:51):
“In a word, no.”
Warsh presented the Summary of Economic Projections while noting he had not submitted a forecast of his own. The median participant sees real GDP at 2.3% this year and 2.4% next year; total PCE inflation at 3.7% this year, falling to 2.3% next year; unemployment holding around 4.1%; and the federal funds rate at 4.1% at the end of this year and staying there next year. Inflation risks are to the upside. Labor risks are roughly balanced.
Michael McKee of Bloomberg flagged the obvious tension (24:00):
“…today you say today’s policy action will support a timelier return to the committee’s 2% target, and yet in the summary of economic projections, the median pushes the 2% target achievement out to 2029, another two years, and I’m wondering how you can square those two things.”
Warsh’s response (24:34):
“One easy way to square that, Mike, is that those aren’t my forecasts. Those are the forecasts of my 18 colleagues, and I tried to represent them dutifully to you. My business is to not give forward guidance, but my commitment in June was to reaffirm to the American people, to anyone listening, that we will deliver price stability.”
Warsh distanced himself from the number, but the number is the Committee’s. The projections released alongside today’s decision show median PCE inflation at 3.7% this year, 2.3% in 2027, 2.1% in 2028, and 2.0% in 2029.
For housing, there’s no immediate relief signal here. The Fed may not be promising more hikes, but with inflation still elevated and long-term yields under pressure, buyers and agents shouldn’t assume lower mortgage rates are right around the corner.
