Fed lowers interest rates for a second time this year
In a move that most market analysts expected, the Federal Reserve announced another cut in interest rates after its October meeting that ended Wednesday. The cut mirrors a similar decision in September, which also recommended cuts to the federal funds rates.
The federal funds rate will shift to a range of 3.75%-4%. The nation’s central bank did not predict whether it would cut rates by the end of the year.
“In the committee’s discussions at this meeting, there were strongly differing views about how to proceed in December,” Federal Reserve Chairman Jerome Powell said after the meeting. “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”
The Federal Open Market Committee, which votes as a body on raising or lowering rates, is expected to meet again December 9-10.
The Fed also further adjusted its view of the overall economy to a slightly more negative stance than its last meeting in September.
“Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments,” a statement released after the meeting said. “Inflation has moved up since earlier in the year and remains somewhat elevated.”
The Fed’s rate cut comes despite concerns it expressed over a lack of data coming from the U.S. government during the recent weeks of shutdowns.
What does this mean?
The announcement from The Fed means that the cost to borrow money, including for mortgages, could drop a bit more even as mortgage interest rates just hit their lowest point this year.
The initial market reactions were mixed on Wednesday. Some options in the bond market were up, while the stock market dropped slightly after the announcement.
How does this affect homeownership?
The Fed’s decisions on interest rates can influence almost every aspect of the economy. The last time the Fed cut interest rates, mortgage rates dropped. And interest rates do affect the bond market, which in turn can influence mortgage rates as well.
There are a few scenarios that could be in play:
If investors believe the Fed has done enough for inflation, it could rush into the bond market and drive rates lower.
There’s also the possibility of inflation coming back into focus, particularly as it relates to increases in prices due to tariffs. That has the potential to push rates higher.
The bottom line is, if you need to buy a home, you should buy a home. If you can afford to wait, you may want to wait, though the Fed has given no indication that rates could drop even more this year.
The team at Guaranteed Rate Affinity is here to help you navigate a tricky housing market. If you have questions, we have team members available to support you. Also, if you know you need to start the homebuying process, we can assist you in getting a mortgage pre-approval.
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