We had assumed the Fed would be doing all they can to help Kamala Harris in her contest with Trump. A rate cut in September, a full two months before the election will serve that purpose allowing the media and Kamala to take credit for any expected short term ‘boom’.
The Federal Reserve has set the stage for a potential interest rate cut in September, following the conclusion of its two-day meeting. However, this anticipated reduction may offer minimal relief to Americans grappling with high borrowing costs. Fed Chair Jerome Powell indicated that a rate cut could be “on the table” if inflation continues to cool down.
“We’re getting closer to the point at which it’ll be appropriate to reduce our policy rate,” Powell stated, “but we’re not quite at that point.” Despite this, the expected rate cuts are unlikely to bring significant respite to would-be homebuyers who have seen their dreams of homeownership challenged by soaring mortgage rates.
#Bitcoin‘s price fell to a two-week low despite expectations of a #U.S. #Federal Reserve rate cut in September, as the crypto market showed little response to dovish signals from the Fed.
Traders remain cautious, with potential liquidity sweeps and short squeezes in focus.… pic.twitter.com/RKUCuryNTG
— TOBTC (@_TOBTC) August 2, 2024
The “announcement doesn’t change the outlook for the year when it comes to mortgage rates,” said Afifa Saburi, a capital markets analyst at Veterans United Home Loans. Saburi added that if the Fed delivers fewer cuts than investors currently expect, there could be a “slight pull back” in mortgage rates. “Potential savings are low for a prospective homebuyer hoping for rate improvement this year,” she noted.
Mortgage rates experienced a dramatic spike in 2022 and 2023 as the Fed embarked on an aggressive campaign to curb high inflation. In just 16 months, the central bank approved 11 rate increases, marking the fastest pace of tightening since the 1980s. While the federal funds rate does not directly dictate consumer borrowing costs, it influences home equity lines of credit, auto loans, and credit cards. Mortgage rates are also affected by movements in the 10-year Treasury yield.
Currently, the popular 30-year fixed mortgage rate hovers around 6.73%, according to Freddie Mac. Although this is a decline from the peak of 7.79% recorded last fall, it remains significantly higher than the pandemic-era lows of just 3%. The substantial rise in mortgage rates over the past three years has created a “golden handcuff” effect in the housing market. Homeowners who secured record-low mortgage rates during the pandemic are now reluctant to sell, further limiting housing supply and leaving few options for eager buyers.
Rates are projected to end the year around 6.4% and remain above 6% throughout most of 2025, even as the Fed prepares to cut interest rates for the first time in four years, according to Lisa Sturtevant, chief economist at Bright MLS. “There is no direct ‘cause-and-effect’ relationship between the Fed rate cuts and a drop in mortgage rates,” Sturtevant explained. “As a result, we should not expect a significant decline in mortgage rates following the Fed’s September meeting.”
Fed’s Interest Rate Decision Today
The Federal Reserve is unlikely to lower interest rates today, but it might signal a potential cut in September—or dampen market expectations #FOMC
The #Fed policy-making body will publish a statement and interest-rate decision pic.twitter.com/rrtGehJ6MB
— Alexander (@alex_trades_18) July 31, 2024
Even minor changes in mortgage rates can significantly impact monthly payments for potential homebuyers. A recent study from LendingTree compared the average monthly payments on 30-year fixed-rate mortgages in April 2022, when the rate was around 3.79%, to one year later, when rates jumped to 5.25%. The study found that higher rates could cost borrowers hundreds more each month and potentially add as much as $75,000 over the lifetime of a 30-year loan.
As the Fed navigates its next steps, the impact on the housing market and overall economy remains a critical area of focus.
Key Points:
i. The Federal Reserve hinted at a possible interest rate cut in September, although any reduction may offer limited relief to Americans facing high borrowing costs.
ii. Fed Chair Jerome Powell suggested that a rate cut could be considered if inflation continues to decrease, but emphasized that rates are not yet ready to be lowered.
iii. Despite potential cuts, mortgage rates are expected to remain high, offering little reprieve to prospective homebuyers.
iv. The Fed’s aggressive rate hikes over the past 16 months, aimed at controlling inflation, have significantly increased borrowing costs for various loans.
v. Mortgage rates are anticipated to stay above 6% through most of 2025, maintaining the “golden handcuff” effect in the housing market, where sellers are reluctant to list homes due to their low locked-in rates.
Lap Fu Ip – Reprinted with permission of Whatfinger News