The Federal Reserve meets twice this summer, and rate-watchers are looking at inflation and the economy to predict what the Fed might do. The central bank always keeps a keen eye on the inflation rate, which increased 2.4% in May and by 2.7% in June, according to Consumer Price Index data. That's down from 2.8% earlier this year, but still above the Fed's stated 2% target rate. 

Thanks to sticky inflation, the federal funds rate has remained stuck in the 4.25% to 4.50% range as borrowers hope that rate cuts may be on the horizon. While experts are largely staying cautious about the idea of a rate cut in July, it's possible that a drop could still be on the table. The CME FedWatch Tool gives only a 6.7% chance of a cut this month, but the rate cut odds jump for the Fed's September meeting. 

Still, the Fed's rate decisions tend to have a big impact on where borrowing rates head, so is it possible that home equity loan rates could fall after the July meeting? Here's what lending experts think. 

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Will home equity loan rates fall after the July Fed meeting? Lending experts weigh in

Rates on five-year home equity terms are currently. And while the Fed doesn't set home equity loan rates, its decisions can have a significant impact on the direction they move in. So, for rates to fall meaningfully after the July meeting, the Fed would likely need to announce a cut. 

"In order for home equity rates to drop in July, the Fed would need to implement a rate cut at the July meeting," says Brian Shahwan, vice president and mortgage banker at the Melissa Cohn Group at William Raveis Mortgage.

But that won't happen unless economic data changes dramatically. Jeremy Schachter, branch manager at Fairway Independent Mortgage Corporation, points to the latest jobs report that showed stronger-than-expected hiring. 

"If this was the opposite and it came back worse than expected, I would expect the Feds to lower rates," Schachter says.

So, if you're hoping home equity loan rates will fall after the July Fed meeting, experts say you may need to wait a little longer. The odds simply aren't pointing toward the likelihood of a rate cut, and it may take another few months before home equity rates start to move.

Aaron Gordon, a loan officer at Guild Mortgage, adds that even if the Fed did make a move later this month, you might not see significantly lower rates on home equity loans, at least not immediately. 

"Lenders price home equity loans based on the Fed rate. Even though some may discount slightly more than others, the floor of that discount will be very close to that rate. Not much difference between lenders," Gordon says.

Tiana Uribe, broker and owner of TRU Financial Services, says she's seeing lenders waiting on the Fed's decision before adjusting their rates. 

"I'm not seeing significant rate adjustments," she said. "Most lenders are holding firm until the Fed makes a move." Still, she's cautiously optimistic about later in the year. "I think they will hold steady for now until fall or winter." 

Uribe notes that if rates do move, it would be "potentially a 0.25% decrease."

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Should you consider a HELOC instead?

If a home equity loan isn't the best fit for your situation, you might consider whether a home equity line of credit (HELOC) is a better alternative for your needs. Unlike fixed-rate home equity loans, HELOCs have variable rates that typically adjust monthly based on market conditions. 

These lines of credit also come with other benefits, like a draw period in which you can borrow from the line of credit as needed and an interest-only payment period. That may make a HELOC the more affordable choice of the two now. However, it's important to be aware that your HELOC payments could increase if rates tick up in the future.

The bottom line

Home equity loan rates likely won't drop after the Fed's July meeting, and the mortgage experts we consulted expect rates to hold steady until the September meeting at the earliest. Still, some home equity lenders are making it easier for borrowers to qualify for this type of borrowing. "I am seeing more flexibility and favorability in guidelines and lender overlays relative to qualifying for borrowers," said Uribe. That may help you qualify for the loan or get more favorable terms.