Fed announces 0.25% interest rate cut
The Fed announced its first interest rate cut of the year after recent reports suggested a weakening labor market.
Mortgage rates rose to their highest level since October 9, analysts said, on disappointment that a third consecutive interest rate cut in December might not materialize.
On October 29, the US Federal Reserve (FRB) lowered its short-term policy interest rate by a quarter of a percentage point to 3.75-4%. However, Federal Reserve Chairman Jerome Powell dashed market expectations for a rate cut, saying at a press conference that a rate cut in December was “not a foregone conclusion.”
The CME Fed Watch tool, which tracks the likelihood of interest rate changes at each Fed meeting, showed the probability dropped to just 66.6% after the Fed meeting and now hovers around 73%. Still, it’s far from the 91.1% probability it was a week ago.
Mortgage rates were near the lowest level this year at around 6.13% heading into the meeting, but rose to 6.27% shortly after Powell’s remarks. It further rose to 6.33% on October 30th.
“The tone of Powell’s remarks put a damper on expectations for an accelerated pace of rate cuts, which was less friendly than expected, with yields rising modestly across the curve,” said Jeff Dergrahian, chief investment officer and head economist at nonbank mortgage lender Loan Depot.
Was this deja vu?
Before the Fed cut rates in September, mortgage rates had fallen to 6.13%, the lowest level in nearly a year, in anticipation of the rate cut. Mortgage rates rose after the Fed cut rates by 0.25 percentage points.
Similarly, mortgage rates moved in the opposite direction and rose by almost 1 point, even though the Fed cut interest rates by 1 point in several meetings at the end of 2024, according to the online financial products market Bankrate.
Will mortgage rates fall again?
BOK Financial predicted that mortgage interest rates could fall slightly from 5.9% to around 6.0%.
Slowing inflation and slowing labor production could continue to support the possibility of lower interest rates, but even if rates don’t fall, mortgage rates are still hovering around the lowest levels of the year, Dergrahian noted.
What does this mean for homebuyers?
Analysts don’t think the expected drop in mortgage rates will be enough to significantly help people find homes.
Bank of Korea Financial said, “More than 80% of housing loans are below 6%, and the ‘lock-in effect’ continues to suppress inventory and (housing) prices continue to rise.”
Fannie Mae forecasts that 5.16 million homes will be sold in 2026, which is lower than the previous forecast of 5.23 million, due in part to affordability issues.
But for those who already own a home, “on the bright side, Wednesday’s rate cut will immediately lower HELOC (home equity line of credit) rates,” Dergrahian said.
A HELOC is a revolving line of credit secured by the equity in your home. You can borrow funds as needed up to a certain limit and repay the amount used plus interest.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
