Experts weigh in on the impact of possible September rate cuts
The Federal Reserve held interest rates steady on Wednesday but signaled a potential shift towards lower borrowing costs in the coming months.
In a unanimous decision, the Federal Open Market Committee (FOMC) voted to keep the benchmark federal funds rate in a range of 5.25% to 5.5%, a level unchanged since last July. While acknowledging that inflation has eased, the Fed said it remains “somewhat elevated.”
The central bank’s statement also tempered its assessment of the labor market, noting a moderation in job gains and a rise in the unemployment rate.
Market reaction to the Fed’s rate decision was largely positive, with mortgage rates already showing signs of decline in anticipation of potential rate cuts.
Mike Fratantoni, chief economist at the Mortgage Bankers Association, is one of the industry experts closely watching these developments.
“The FOMC did not change its target for the federal funds rate but did shift its statement to acknowledge that inflation is slowing, unemployment is rising, and that there are now more balanced risks to the economy,” Fratantoni said. “While the Fed still hopes for a slower rate of inflation, there is a greater risk now that keeping monetary policy overly tight for too long could lead to unnecessarily higher unemployment.”
Fratantoni expressed confidence in the likelihood of rate reductions this year, suggesting that such a move could drive mortgage rates lower and potentially increase refinancing activity.
“The FOMC vote to keep rates steady for now was unanimous, but there have been increasing calls from many Federal Reserve officials to begin cutting rates,” he said. “We are holding to our call for two rate cuts this year, with the first in September, as we expect that inflation will continue to moderate.
“Mortgage rates are now well below 7%, and there has been some modest pickup in refinancing activity in recent weeks. We expect that mortgage rates will continue to drift lower through the remainder of the year, particularly if the Fed does launch a series of rate cuts in September.”
Read more: Mortgage application activity weakens as borrowers await Fed rate cut
NerdWallet mortgage expert Holden Lewis agreed, saying: “The Federal Reserve has been hinting for weeks that it will cut interest rates in September, and mortgage rates have been falling gradually in advance of that welcome development. We can expect mortgage rates to slowly slip lower through August, just as they’ve been inching downward since April.”
This potential easing of mortgage rates could provide some relief to a housing market that has been grappling with affordability issues. However, the road to recovery may be long and complex.
Eric Orenstein, senior director at Fitch Ratings, cautioned that “even with a September rate cut possible, mortgage companies will continue to face meaningful earnings headwinds for the foreseeable future. With most outstanding mortgages still carrying rates below 5% and record home prices driving down affordability, it may be a long road back to higher origination volumes.”
As the housing industry prepares for these potential changes, questions remain about how quickly and significantly the market will respond. Will lower rates be enough to offset high home prices and improve affordability? How will this impact housing inventory, which has been tight in many markets?
The coming months will be crucial as the industry watches for the Fed’s next moves and their ripple effects through the housing market.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
