All eyes will be waiting to see if the Federal Reserve will lower interest rates at the September Federal Open Market Committee meeting. Slowing inflation pressures and easing economic growth data could be the catalysts that push the Fed to cut the Fed Funds Rate (FFR). The Fed Funds Rate is the interest rate banks charge each other to borrow or lend excess reserves overnight. This rate impacts interest rates on everyday consumer products, such as credit cards, auto loans, student loans, and the like.
Currently, there is a 100% chance of a rate cut in September, as evidenced by Fed Fund Futures trading. “At the moment, a modest cut of 25 basis points in September seems likely. If that goes well, we could see two additional 25 basis point cuts before 2024 ends. Cuts are far from guaranteed however, remember the Fed is designed to pivot quickly should something unexpected happen,†said Jacob Channel, Chief Economist at LendingTree.
Cuts are not guaranteed and Fed officials will continue to monitor economic data as it is released.
The Fed has a dual mandate of keeping inflation in check and obtaining maximum employment. Job growth has averaged a decent (but not great) 177,000 jobs added per month for the past three months, down from the three-month average of 275,000 a year ago. Inflation, as measured by the Consumer Price Index, has fallen below 3% after soaring to 9% in June 2022. So, inflation is easing and job growth is slowing, which could usher in not only an interest rate cut in September but two more cuts by the end of 2024.
Bottom line: Fed rate cuts don’t mean that if it cuts by a quarter point, mortgage rates will fall by a quarter. But it does have a positive impact on the bond markets and on home borrowing costs going forward.
Source: Mortgage Market Guide
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