In a much-anticipated vote Wednesday, the Federal Reserve announced a quarter-percent interest rate cut, its third in just four months.
The move could make borrowing options more affordable for millions of Americans, including potential homebuyers seeking affordable loans and current homeowners wanting to refinance, according to a report by CBS News.
The Fed officially pushed the federal funds rate down to a range of 3.50% to 3.75%, which is the lowest federal funds rate since November 2022.
While noting that mortgage rates don’t respond directly to Fed rate decisions, CBS News said that the federal funds rate influences short-term borrowing and that means such things as credit cards, personal loans and some home equity lines of credit, the report said that long-term fixed mortgage rates are tethered to other factors such as investor expectations, inflation outlooks, and the movement of the 10-year Treasury yield.
What the Fed’s Rate Cut May Signal
Why is that important?
The announcement of a rate itself doesn’t usually spark an immediate, dramatic move in mortgage rates, CBS said. Markets, after all, had expected another 25-basis-point reduction for several weeks, so most mortgage lenders likely already have adjusted their rate sheets in anticipation of this Fed move.
CBS said the environment surrounding the Fed’s decision does matter because a lower federal funds rate often signals that the Fed sees inflation cooling and economic risks moderating. Both of those factors tend to put downward pressure on longer-term yields, the CBS report said.
If investors believe the Fed is comfortable continuing its easing cycle into next year, that sentiment alone could help nudge mortgage rates to go lower.
Borrowers should watch how the bond market reacts in the days and weeks ahead, CBS News said.
Should the 10-year Treasury yield drift lower, mortgage rates may follow suit.
But if economic data surprises to the upside or inflation remains stickier than expected, yields can climb again, CBS said, taking mortgage rates with them.
At a news conference following the decision, Chair Jerome Powell said at a news conference after the decision that the vote was a “close call,” according to CNBC.
“I could make a case for either side,” Powell said. Powell added that policymakers are in a good place to “wait and see how the economy evolves.”
