Five Million Americans Lose Home Affordability as Fed Prepares to Pause

The average 30-year mortgage rate hit 7.4% earlier this month, a level that has pushed an additional five million Americans out of the housing market since the start of the year. This figure comes from Oxford Economics, which tracks how borrowing costs affect household budgets. The new high stands in contrast to the Federal Reserve's decision to keep its key interest rate steady at its upcoming meeting on Wednesday.

Chairman Kevin Warsh will lead the announcement for the Fed. The central bank is expected to maintain its current stance despite inflation accelerating in recent months. The primary driver of this price surge is the Iran war, which has sent oil and gas prices sharply higher. Consumer prices rose 3.7% in September compared to the same period last year, a significant jump from the 2.4% rate recorded in February before the conflict began.

The Fed raised its key rate from 3.6% to 3.9% in September, marking the first increase in three years. However, President Donald Trump criticized the move, blaming the committee rather than Warsh, whom he appointed. Warsh now faces the challenge of explaining why the bank paused after that single hike. The policy meeting concludes less than one week before the midterm elections, where cost of living concerns are a central topic for voters.

Inflation data released on Thursday is set to show further increases. The personal consumption expenditures price index is forecast to jump to 3.6% in September, up from 3.4% in August. Core prices, which exclude food and energy, are expected to rise to 3.1%. Aditya Bhave, head of U.S. economics at Bank of America, argued that the Fed has become too complacent about these above-target rates. He noted that rising diesel costs will increase shipping prices for nearly all goods, spreading inflation further through the economy.

Warsh is likely to hold a brief news conference following the decision. His predecessor, Jerome Powell, typically spoke for 45 minutes, while Warsh’s last press conference lasted about 30 minutes. Investors are watching for hints that the Fed may raise rates again in December. The U.S. economy remains resilient, with unemployment at 4.2% and growth for the third quarter expected to reach 3%, up from 2.2% in the previous quarter.

Global central banks are also making decisions this week. The Bank of Canada is expected to raise its key rate by a quarter point to 2.5% on Wednesday. The European Central Bank and the Bank of Japan are scheduled to meet on Thursday, with both expected to keep their rates unchanged. For the Fed, the strong economic growth suggests the economy can withstand higher rates, yet the immediate impact on consumers remains severe.