Fed Cuts Rates By 1/2%
Join me in our ‘Weekly Market Update’ to decipher what to expect in the coming weeks & months.
Happy Friday! This is Brian Manning here with your weekly update. Let’s get right to it—there’s a lot to talk about this week.
I’m sure everyone has heard about the Federal Reserve’s recent rate cuts, which is super exciting for us to be aware of as they have already taken place in the marketplace. I want to go through some key information regarding this development.
First, it’s important to note that mortgage rates do not move in lockstep with the Federal Reserve. For example, when the Federal Reserve cuts rates by half a percent, that doesn’t necessarily mean mortgage rates will also move lower. Currently, mortgage rates are 1.5% to 2% lower than they were about 10 to 11 months ago, reflecting a significant decrease. However, the Federal Reserve’s actions do not directly result in lower mortgage rates.
Let’s take a closer look at what the Federal Reserve has done. They cut rates by 50 basis points, lowering the Fed’s rate from 4.75% to 4.5%. The Fed operates within a voting framework, and there’s usually a discussion regarding whether to cut, hold, or raise interest rates. In this instance, there was only one dissenting opinion—Governor Bauman, who has been vocal about preferring to raise rates rather than lower them.
The Federal Reserve has a dual mandate: to maintain stable prices and to promote maximum employment. They aim for inflation to remain in the 2% range, but they currently project that this target may not be reached until 2026. Despite this, they believe we are on a confident path toward that target. In their previous statement, they acknowledged that job gains have slowed, indicating a moderation in the job market, which likely influenced their decision to cut rates.
Additionally, the economy remains solid, though the Fed has not impacted what’s called quantitative tightening—the process of rolling off the balance sheet, which we can discuss in a future update.
The summary of Economic Projections is also essential, as it sheds light on the Federal Reserve’s plans. Currently, the Fed funds rate anticipates another quarter-percent cut in November and another in December, amounting to a total of 1% in rate cuts for this year.
Regarding inflation, it currently stands around 2.6% to 4.2%. Interestingly, when looking at housing data from the Core Logic Rental Index for July, we see a slight decrease in rental increases, dropping from 2.9% to 2.8%. However, government data indicates rents are increasing by 5.2%, highlighting a significant disconnect.
The dot plot, which reflects the voting members’ expectations for interest rates, shows that while some members foresee no cuts, the majority believe we will see an additional 50 basis points in rate cuts. Looking ahead to 2025, many anticipate another full percentage point in cuts, signaling continued momentum in this direction.
In a recent press conference, Jerome Powell emphasized that the Federal Reserve does not foresee a recession. They believe spending and growth remain resilient. He highlighted their commitment to cutting rates to avoid falling behind, as the Federal Reserve often has to make drastic shifts in their approach.
Powell specifically mentioned the importance of normalizing rates, stating that this will help stabilize the housing market. His comments reflect the Fed’s conscious effort to lower mortgage rates, aiming to create a more stable environment for households.
Another point I want to address is the current state of active listings. Existing home sales for August decreased by 2.5% month-over-month, likely a result of higher rates earlier in the summer. While inventory has been a topic of discussion, August saw about 1.3 million homes available, though many are already under contract. This leaves roughly 900,000 active listings on the market.
When comparing this August to last year, we’ve seen an increase from 670,000 to 909,000 homes. However, when looking back to pre-pandemic levels in August 2019, when there were 1.24 million homes available, it’s clear we are still below those numbers.
This information is vital as we continue to monitor the housing market. I’m here all weekend if you’d like to learn more about how we are successfully closing purchase transactions in just 10 days. Feel free to give me a call—I’m available seven days a week from 8 AM to 9 PM.
Happy Friday and happy Fed rate cut! I hope everyone has a great day!
-Brian
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