Yesterday the Fed cut rates by 50 basis points (bp) to a target range of 4.75-5%, with the effective Fed Funds Rate at 4.875%. Many had expected a cut of 25bp until the end of last week, then the market started to show a 50 point drop. What happened?
With the Fed deciding to go with a 50 bp instead of 25 shows that the Fed wanted to front load rate cuts and could signal they felt they were behind the curve and somewhat concerned about the economy. However in the announcement, they did say they felt the economy was solid. The statement showed that the Fed has gained confidence on inflation and that job gains have slowed. They believe the economy is growing at a solid pace and they think they can avoid a recession.
So what is going to happen next? According to the Fed’s dot plot map, there are two meetings left this year and the expectation is that the Fed will drop rates 25bp at each meeting. The expectation is another 100bp drop in 2025.
The market reaction was all over the map yesterday. Stocks and bonds initially moved higher and then ended the day lower. Stocks are rebounding today and the bond market is also positive and has erased most of yesterday’s losses.
Interest rates are about the same – what is the most important thing to know about the Fed meetings and what happens is that investors look to the future. So the rate drop by the Fed was already priced into mortgage rates. Investors were looking to the Fed’s statement and press conference after the meeting to get an idea of what will happen at the next few meetings. Mortgage rates will continue to slowly improve but it will depend on employment reports and inflation reports. The Fed doesn’t set mortgage rates, they are a factor in rates, but there are many other pieces in the rate puzzle! What the Fed drop will affect are things like credit card rates and home equity loans. Many HELOC’s are based on the Fed’s rate so many should see a drop in their interest rate.
What will happen in the future? No one truly knows, as I frequently say, if I knew what was going to happen with mortgage rates, I would be sitting on a beach somewhere!! But we do expect that rates will slowly come down, not back to the 2’s and 3’s of a few years ago, but into the 5’s and maybe if we are lucky into the 4’s. Only time will tell for sure.
Leslie Vanderwerf, NMLS ID#335509, CrossCountry Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website
