John’s Finance Corner: Fed Chairman Powell Signals Upcoming Rate Cut What It Means for Mortgage Rates
In a significant announcement at the Jackson Hole Economic Symposium, Fed Chairman Jerome Powell confirmed that a rate cut to the Federal Funds Rate is expected on September 18th. Powell emphasized the need for policy adjustments, stating, “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” While the exact size of the initial cut remains uncertain, it is anticipated to be either 25 or 50 basis points, contingent on forthcoming data, including the PCE inflation report on August 30th and the BLS jobs report on September 6th.
Inflation and Labor Market Dynamics: Powell highlighted that inflation has significantly declined, bolstering his confidence that it is on a path to 2%. He noted that the risks of inflation have diminished, whereas the risks to unemployment have increased, indicating a shift in the Fed’s focus towards the labor market.
Market Expectations: According to Fed Futures, there is a 100% chance of a 25-basis point cut in September, with a 33% chance of a 50-basis point cut. The market also predicts a 73% chance of 100 basis points worth of cuts by the end of this year and an additional 125 basis points in cuts by 2025. This would bring the Fed Funds Rate to approximately 3.125%, still above the inflation rate and considered restrictive.
Impact on Mortgage Rates: It’s crucial to understand that mortgage rates do not directly correlate with the Fed Funds Rate. Instead, they tend to follow the performance of the 10-year treasury. While a Fed rate cut is expected to lower mortgage rates, it doesn’t mean an immediate drop equivalent to the rate cut. Recent decreases in mortgage rates have already factored in the potential for cuts. However, various factors, including upcoming inflation reports, job data, the Presidential election, and global geopolitical issues, can influence the trajectory of rates.
Market Volatility and Buyer Considerations: As we enter a volatile period, it’s encouraging to hear discussions about lower rates heading into the fall. Potential buyers should be aware that declining mortgage rates could lead to increased buying activity, making it more competitive to secure a home contract. This surge in demand could also drive-up home prices.
Stay tuned for updates as we navigate these dynamic market conditions. For those considering buying a home, it’s essential to stay informed and prepared for potential changes in the market.
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John Lamberg
Senior Loan Officer
Mobile 727.366.9947
Website ccm.com/john-lamberg
Email [email protected]
