The Fed could raise interest rates this week as inflation persists. Is the end in sight?

The end of the steady climb in consumer interest rates appears to be in sight.

“Mortgage interest rates are at or very close to their peak,” said Matt Colyar, economist at Moody’s Analytics.

Rates are expected to inch up for awhile. Jordan Levine, senior vice president and chief economist for the California Association of Realtors, thought “there’s a chance we could see 7.5% before the dust settles.” Current interest on a 30-year fixed rate mortgage averages 6.78% nationally..

Interest on credit cards, which are more sensitive to rate decisions by the Federal Reserve, could go higher, quicker.

The Federal Reserve is expected to raise its key rate another quarter-point this week, bringing it to the 5.25% to 5.5% range. An increase would be its 11th rate hike since March 2022 as the Fed tries to cool the economy and slow price increases.

Evidence is, though, that the economy is growing at a decent pace, and the 12-month rate of inflation last month was down to 3%. It was 9.1% a year earlier.

The UCLA Anderson Forecast projects prices in California rising 3.8% in this quarter and 3.1% in the fall quarter if there is no recession. The Fed’s national target is 2%.

Is there an ‘end is in sight’?

As a result, “It does seem like the end is in sight with regard to additional rate hikes,” said Jacob Channel, senior economist at LendingTree, an online lending marketplace.

As the Fed goes, so usually goes the cost of credit, “though it may take a month or two before current borrowers actually see changes show up on their bills,” he said.

The wild card in all these scenarios is how the Fed handles interest rates after its meeting Tuesday and Wednesday.

Many economists see the Fed pausing any rate increase unless inflation suddenly jumps again, but Fed officials have not ruled out more rate hikes. Its next scheduled meeting is Sept. 19-20.

Colyar saw rates remaining stable through mid-2024, then slowly beginning to decline as prices remain stable.

Sung Won Sohn, president of SS Economics in Los Angeles, had a somewhat different view.

He saw the Fed as “hell-bent on reaching the 2% inflation target.” That means it will overreact, and the 2% target “is not realistic and in the process of achieving the unreasonable goal, the interest rate is likely to be pushed up too high with attendant costs to the economy.”

Credit card rates tend to be more fluid, and often react to changes in Fed rates.

Mortgage rates tend to be less volatile. Lenders tend to think long-term, so they adjust interest rates to cover potential changes over a 15 or 30 year period.

As a result, small increases by the Fed usually don’t rattle mortgage interest rate markets. Freddie Mac found that as of Thursday, 30-year fixed-rate mortgages averaged 6.78%, a slight drop from last week’s 6.96%. The rate peaked at 7.08% last fall.

“Those rates should ease up slowly,” said Colyar. But don’t expect anything like the rates of two years ago.

“We’re not going back to 3% mortgage loans anytime soon,” he said.