On September 18, 2024, the Federal Reserve made headlines by cutting interest rates by 50 basis points (0.50%), bringing the target range down to 4.75% – 5%. This was the first major rate cut in a while, and it’s likely left many homeowners and potential buyers wondering what it means for mortgage rates.
What Did the Fed Actually Cut?
First, it’s important to clarify: the Fed didn’t directly lower mortgage rates. The rate that the Fed controls is the overnight rate that banks use to lend to each other. This is known as the Federal Funds Rate, and it influences short-term lending rates like those on credit cards, car loans, and business loans. While this has a ripple effect across the economy, including mortgage rates, the relationship is indirect.
Will Mortgage Rates Follow Suit?
Mortgage rates don’t always follow the Fed’s actions exactly. Historically, rate cuts can sometimes push mortgage rates up because they stimulate more economic activity, which could trigger inflation. When inflation rises, the value of fixed long-term returns (like those on a 30-year mortgage) decreases, leading lenders to raise rates to protect their profit margins.
However, today’s economic environment is different. The Fed had previously hiked rates by 525 basis points (5.25%) to curb inflation, which is now at a more manageable 2.6% (Core PCE, the Fed’s favorite inflation measure). Given these restrictive policies, the Fed’s recent cut shows confidence that inflation is under control and trending toward their 2% target.
What to Expect for Mortgage Rates Going Forward
The Fed’s Summary of Economic Projections (SEP) suggests that more cuts are on the way: 50 basis points more this year and another 100 basis points in 2025. This signals a loosening economic environment, which generally leads to lower mortgage rates. Additionally, if unemployment continues to rise, as the Fed expects it to (forecasted to reach 4.4% by year’s end), that too would put downward pressure on mortgage rates.
In a potential recessionary environment, which the Fed is keeping a close eye on, mortgage rates could drop even further. However, it’s important to remember that rates won’t decline in a straight line. There may be fluctuations along the way, as markets react to economic data and inflation outlooks.
The Bottom Line: Positive News for Homebuyers and Homeowners
If you’ve been waiting to refinance your home or explore your home-buying options, now might be the time to start thinking ahead. With the Fed poised to make additional cuts and inflation seemingly under control, we could see mortgage rates continue to trend lower in the coming months. But as always, every situation is unique, and it’s essential to consult with a mortgage professional to explore your best options.
At Oak Leaf Community Mortgage, powered by North Shore Trust & Savings, we’re here to help you navigate these changes and find the best mortgage solution for you. Reach out to our team today to discuss how this evolving rate environment could benefit your financial goals.
Stay informed and ahead of the curve. Whether you’re a first-time buyer or considering a refinance, we’re ready to provide the guidance you need to make confident, informed decisions.
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