Fed Cut Rates…Now What?
The Fed’s new easing cycle began last week, as they cut their benchmark Federal Funds Rate by 50 basis points, bringing it to a new range of 4.75% to 5%. This decision was not unanimous, however, as Fed Governor Michelle Bowman wanted a less aggressive 25 basis point cut.
The Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates. The Fed began aggressively hiking the Fed Funds Rate in March 2022 to try to slow the economy and curb the runaway inflation that became rampant after the pandemic. More recently, cooling consumer inflation and rising unemployment caused the Fed to acknowledge that “the time has come for policy to adjust.”
Now What? The Fed is trying to ease interest rates to keep the economy from entering a recession, and they’re currently forecasting another half percentage cut by the end of this year, and an additional one percentage cut in 2025. However, these forecasts may change, in either direction, as economic data presents itself.
In addition, it’s important to remember that mortgage rates may not directly follow the Fed Funds Rate or move in similar increments. But if the overall interest rate environment is moving lower, that’s typically a good sign for mortgage rates.
So what does this mean for me? If this holds true it is never a bad time to discuss refinancing, or buying, but I would advise refinancing to hold off until some of these things take place and improvements begin to happen. There are probably more gains to happen based off what they are saying, but never promised. Hence, reach out to see if it makes sense for you today. Also, purchasing is probably the best it has been, because guess what? When rates do begin to come down as mentioned above, everyone will be coming out to buy and more people qualifying for the purchase price you are hoping for. It is never a bad time to get into real estate.
