Market expectations are for two interest rate cuts by the end of the year. (iStock)
The Federal Reserve announced on Wednesday that it plans to keep the federal funds rate in a range of 5.25% to 5.5%, where it has been since last July.
Fed Chairman Jerome Powell told reporters: The central bank is increasingly confident that inflation is heading towards its 2% target rate, and while it didn’t cut rates this time, it signals a cut could come soon. Market expectations are for a 25 basis point cut by the time the central bank meets in September. On Wednesday, the Mortgage Bankers Association said it expects two rate cuts this year, given its outlook for inflation to remain moderate.
“The Fed is walking a tightrope with respect to the nation’s economy as it tries to balance the risk of a labor market slowdown with continued de-inflation,” says Dr. Selma Hepp, chief economist at CoreLogic. “At this point, the chances of a soft landing continue to grow, but no action is expected until the next meeting in September. Falling mortgage rates in recent weeks suggest the mortgage market is also anticipating rate cuts, which should boost buyer demand at the end of the year.”
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Lower interest rates could encourage borrowing
With two rate cuts in 2024 still possible, consumers may finally start to feel some relief, according to Michelle Ranelli, vice president and head of U.S. research and consulting at TransUnion.
Lower interest rates are likely to boost consumer demand for financing big-ticket purchases like homes and cars. Mortgage rates have already started to fall as the likelihood of rate cuts increases, and early indicators show consumers are becoming more interested in new mortgages, according to Ranelli.
“Consumers continue to demand credit, but when it comes to extending new credit, lenders are beginning to focus on consumers with higher credit risks as a way to mitigate risk,” Ranelli said. “It remains to be seen whether lower interest rates will once again make credit more accessible to potential higher-risk borrowers.”
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US consumers scale back economic activity
A recent Morning Consult report found that most U.S. consumers believe interest rates are too high and are forcing them to cut back on spending as a result. investigationMore than half of respondents (68%) said rising interest rates have affected their finances, with 75% cutting back on non-essential spending and 63% cutting back on essentials as a result.
Additionally, despite the Fed signaling it plans to cut rates at least once this year, 34% of respondents believe interest rates will be higher (34%) than lower (25%) at this time next year.
“By deciding not to cut interest rates today, the Fed did not send a clear signal that they will do so in September,” said Morning Consult economist Sophia Baig. “Keeping interest rates elevated could be harmful to consumers and the broader economy, which is already showing signs of cooling. Moreover, Morning Consult survey data shows that a majority of consumers believe interest rates are too high and are reducing economic activity as a result, a warning sign of downside risks ahead.”
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High homeowners insurance rates are scaring Florida home buyers away. Other states face the same problem.
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