Ally McCartney, managing director at UBS Private Wealth Management, explains on “Making Money” how the Fed’s message could affect markets.
of Federal Reserve The Fed laid out the rationale for a September interest rate cut at the end of its two-day meeting on Wednesday, but the long-awaited cut may provide little relief to Americans struggling with rising borrowing costs.
A rate cut in September could be “on the table” if inflation remains subdued, Federal Reserve Chairman Jerome Powell told reporters at a news conference after the central bank decided to keep interest rates at their highest level in 20 years.
“We are approaching a point when it would be appropriate to lower interest rates, but we are not there yet,” Powell said.
Still, interest rates are unlikely to fall enough to provide real relief to would-be homebuyers for whom astronomical inflation has eroded a key tenet of the American Dream. High mortgage interest rates.
The U.S. housing market is “in a tailspin” and could remain so until 2026
Federal Reserve Chairman Jerome Powell speaks at a press conference following the Federal Open Market Committee meeting in Washington, DC on July 31, 2024. (Photo: Andrew Harnick/Getty Images/Getty Images)
“Today’s announcement doesn’t change our outlook for mortgage rates this year,” said Afifa Sabri, capital markets analyst at Veterans United Home Loan. Mortgage rates could “get a little lower” if the Fed cuts rates less than investors currently expect, Sabri said.
“If that happens, the range of interest rates we’ve seen this year will likely remain intact,” she said, “leading to unlikely savings for prospective homebuyers hoping for interest rates to improve this year.”
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Mortgage rates have surged in 2022 and 2023 as the Federal Reserve waged an aggressive campaign to tame high inflation. In just 16 months, the central bank has approved 11 interest rate hikes, the fastest pace of tightening since the 1980s.
Even small changes in mortgage interest rates can affect the amount a prospective homebuyer pays each month. (David Paul Morris/Bloomberg/via Getty Images)
The federal funds rate is not paid directly by consumers, but it affects the costs of borrowing money, including mortgages and auto loans. credit cardMortgage interest rates are also influenced by trends in the 10-year government bond yield.
Rates on the popular 30-year fixed mortgage are currently hovering around 6.73%, down from a record high of 7.79% last fall but remaining significantly higher than the pandemic-era low of just 3%, according to Freddie Mac.
Mortgage calculator: See how much rising interest rates will cost you
Rising mortgage rates over the past three years have created a “golden handcuff” effect on the housing market: Sellers who locked in record-low mortgage rates of under 3% when the pandemic began are becoming reluctant to sell, further limiting supply and leaving eager would-be buyers with few options.
But interest rates are likely to hover around 6.4% by the end of the year and remain above 6% through most of 2025, even as the Fed prepares to cut rates for the first time in four years, according to Lisa Sturtevant, chief economist at Bright MLS.
The Marriner S. Eccles Federal Reserve Bank Building in Washington, DC, June 25, 2024. (Photographer: Ting Sheng/Bloomberg via Getty Images/Getty Images)
“There is no direct causal relationship between Fed rate cuts and lower mortgage rates,” Sturtevant said. “Therefore, we should not expect to see a significant decline in mortgage rates following the Fed’s September meeting. In fact, expectations of a September rate cut are already priced in, which is why we are already seeing mortgage rates start to fall.”
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Even small changes in mortgage interest rates can affect the amount a prospective homebuyer pays each month.
Recent Research LendingTree’s research compared average monthly payments on a 30-year fixed-rate mortgage in April 2022, when interest rates were hovering around 3.79%, to a year later, when rates had jumped to 5.25%.
The study found that rising interest rates could mean borrowers paying hundreds of dollars more each month, adding up to as much as $75,000 over the life of a 30-year loan.
