Will the Federal Reserve cut interest rates today?

Today I want to break down the answer to this question for you as a prospective homebuyer or seller.

In all likelihood, The Fed will decide to keep the rates where they are currently which is of course very high. What does this mean for you? Mortgage rates will likely stay elevated too, as lenders are looking to keep their profits healthy. Remember the Fed funds rate is separate from mortgage rates, but the two are definitely correlated. Long term lending rates, like the yield on 10-year Treasury bonds, are more closely tied to mortgage rates, when compared to simply looking at the Fed funds rate.

The US economy is booming, and jobs are plentiful. Great, right? But remember, this could push mortgage rates even higher as more people have the means to chase their dream home.

Inflation dynamics are a key driver of the Fed’s decision-making process. Inflation's like that uninvited party guest who everyone wishes would just leave already. It’s making the Fed cautious, and it’s the main factor keeping rates high because the Fed wants to be sure inflation doesn’t surge again. This is the single biggest factor affecting mortgage rates. The Fed has made it clear that their decisions to maintain or cut rates will be data dependent, meaning they’re going to wait until they see clear signs in the data that inflation is behind us and we’re back to their 2% target.

Now, it’s important to remember another key factor this year - the presidential election cycle. If the political bigwigs push for rate cuts and get their way, there’s a chance you might just see those mortgage rates dipping which would be a welcome relief! However, the Fed tends to play it safe during election cycles, being careful to avoid any apparent political bias.

Finally, it’s all about the signals the Fed sends out. While the decision to maintain rates is pretty much guaranteed, Fed Chair Powell’s words can sway the market, shaping mortgage rates indirectly. The expectation is for the Fed to signal an end to tightening, but it seems unlikely they’ll reveal much more than that. They want to leave themselves room to maneuver in whatever direction the data dictates. In the best case scenario, the Fed strikes a dovish tone and signals multiple imminent rate cuts. In the worst case scenario, the Fed makes hawkish statements, hinting that rates might stay higher for longer or even the possibility of further rate hikes. So, stay tuned! The FOMC will issue a statement at 2pm EST and then Fed Chair Jerome Powell will speak at 2:30pm for a post-meeting press conference.

There you have it! The market’s a complex beast, but knowledge is power, especially when it’s about your dream home. For more insights, hit that follow button. Stay informed to stay ahead. Until next time!