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.”
What’s the bottom line? 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.