09/20/2024
On September 18, the Federal Reserve cut interest rates by 0.50%, bringing the Fed Funds Rate (the rate at which banks lend to each other) to a range of 4.75% to 5%. However, it’s important to note that the Fed is **not** cutting mortgage rates directly, but the decrease in this rate impacts short-term loans (like credit cards, car loans, and business loans) and indirectly affects mortgage rates.
Because of this cut, short-term interest rates (like those on adjustable-rate mortgages or ARMs) will fall faster than long-term rates. So, we may see the **yield curve** (which compares short-term and long-term rates) become steeper, which is good for the market.
Regarding mortgage rates, these depend a lot on how people feel about the economy and inflation. In the past, lower rates encouraged people to borrow more, leading to economic growth. But right now, the Fed has been raising rates for over a year to fight inflation, and as a result, mortgage rates have been high.
However, with this latest rate cut, it signals that the Fed believes inflation is starting to be under control. The Fed forecasts another 0.50% rate cut this year and 1% next year, which would help the economy by making it cheaper to borrow. The Fed also thinks inflation will go down, and unemployment might rise slightly, which could also bring mortgage rates down over time.
Bottom line: The first-rate cut is usually the biggest, and the Fed will likely make smaller cuts moving forward, depending on how unemployment behaves. So, we might see mortgage rates slowly trending down, but it won’t be a smooth drop—there may be ups and downs along the way.
Please contact me if you have any questions.
