Mortgage Rates Hit 6.95% as Fed Hikes Rates to 3.9%

The average rate for a 30-year fixed mortgage rose to 6.95% this week. This marks the highest level in over 19 months. Freddie Mac reported the increase from 6.76% last week. One year ago, the average rate stood at 6.26%.

The Federal Reserve raised its benchmark interest rate by 0.25 percentage points on Wednesday. This is the first hike since 2023. The key rate now sits at approximately 3.9%. The central bank indicated a second hike to 4.1% is possible later this year.

Borrowing Costs Continue to Climb

Mortgage rates have risen for four consecutive weeks. The 15-year fixed rate also increased, reaching 6.26% from 6.09%. A year ago, that rate was 5.41%. These figures represent the highest levels since late January 2025.

Higher borrowing costs affect auto loans and credit cards as well. The Fed’s decision aims to curb persistent inflation. Consumers face elevated prices for groceries and fuel. Affordability is now a central issue in the upcoming midterm elections.

Consumer Spending Remains Resilient

Retail sales increased by 1.2% in August. This exceeded the 0.7% gain predicted by economists. July sales had previously fallen by 0.5%. Spending at clothing stores rose by 0.7%, while furniture stores saw a 0.9% increase.

Online retailers recorded a 2.6% gain in sales. Gas station sales were excluded from the 1.1% non-fuel increase. The data suggests consumers are still spending despite rising costs. This resilience contrasts with the tightening monetary policy environment.

Labor Market Shows Stability

Initial jobless claims fell to 196,000 last week. This is the lowest figure since mid-July. The previous week saw 206,000 claims. The four-week average dropped to 203,250, signaling job security.

Economists had expected claims to reach 207,500. The actual number came in lower than anticipated. Claims have remained in a low range of 200,000 to 230,000 for a year. Layoffs remain rare across the US economy.

Source: GN auto markets/housing: mortgage rates