Fed Cuts Interest Rates: What It Means For You
Key Takeaways
- Significant Rate Cut: The Federal Reserve has lowered its key interest rate by 0.50%, the biggest cut since March 2020.
- Former fed funds range: 5.25-5.50%
New range: 4.75-5.0% - Impact on Mortgage Rates: Mortgage rates initially improved but then rose slightly due to revised Fed forecasts for future cuts.
- Reason for the Cut: The Fed is aiming to balance inflation and employment, and prevent negative economic impacts of high rates.
- Future Rate Cuts: The Fed projects significant rate cuts over the next 16 months.
- Should You Buy or Refinance? Current rates are favorable for home buyers. Homeowners with 7.0% + interest rate might consider a low cost loan option to get immediately relief with a rate around 5.75%. Homeowners can refinance to the lowest rates over the next 16 months during the Feds rate cut period.
Fed’s Historic Move
- The Fed cut its key interest rate by 0.50%, the largest reduction since March 2020.
- This decision was driven by recent weaker economic reports and a desire to balance inflation and employment.
Mortgage Rate Reactions
Mortgage rates initially improved but then rose slightly.
- The market had already priced in some of the larger 0.50% cut.
- The Fed’s revised forecasts for future cuts in 2025 caused the slight increase in mortgage rates. Markets were expecting bigger cuts in 2025.
- Despite the slight increase, rates are still much better than they were weeks ago.
Why The Fed is Cutting Rates Now
- The Fed is aiming to balance inflation and employment.
- The previous strategy of raising rates to combat inflation was successful.
- The Fed is now focused on preventing negative economic impacts of high rates.
Future Rate Cuts and Mortgage Rates
- The Fed projects further cuts in 2024 and 2025. Possilby 0.25% on November 6-7 and 0.25% in December 17-18
- Furthermore, the Federal Open Market Committee (FOMC) anticipates an additional decrease in the federal funds rate ranging from 1.0% to 1.25% over the course of 2025.
- Experts predict that mortgage rates could settle in the high 5s or low 6s starting in 2025.
- Rates could go lower or higher, but it is likely they will fluctuate.
Is it Time to Buy or Refinance?
- Current rates are favorable for home buyers.
- Homeowners with 7.0% + interest rate might consider a low to no cost loan option to get immediately relief with a rate around 5.75%. Homeowners can refinance to the lowest rates over the next 16 months during the Feds rate cut period.
Major Agency Forcast
Housing Authority | Forecast |
Fannie Mae | 6.2% by Q1 2025 |
National Association of Home Builders | 6.14% for 2025 |
Wells Fargo | 5.96 by Q1 2025 |
Mortgage Bankers Association | 5.9% by Q4 2025 |