December 19th, 2024 4:06 PM by Sam Kader MLO130505
12/18/24 - The Federal Reserve reduced Fed Funds rate by another 0.25%. Despite the rate cut, mortgage rates are unmoved since this cut is already baked into the 10-year bond yields. This decision reflects the Fed's ongoing efforts to balance economic growth with inflation control. The Fed signaled a more gradual approach to rate reductions in 2025, projecting only two rate cuts for the year 2025, down from the four anticipated in September 2024. As a reminder - mortgage rates and the Fed Funds Rate do not move in lock step.
On 11/6/24 - The Fed announced another cut in the federal funds rate decreasing the target range by 0.25%.The Fed controls the federal funds rate which is essentially the shortest-term lending rate for banks. While mortgage rates don't move directly in tandem with the Fed's funds rate, the central bank's approach is a key influence on investors' expectations around inflation and economic growth. Mortgage rates are more correlated and move in tandem with long-term interest rates including the yield for US 10-Year Treasury bonds which are determined by many factors such as outlook for economic growth and inflations years in the future. While the Fed doesn't directly set mortgage rates, its policy influences them by affecting bond yields. Post 2024 election - here's what to watch out for with the incoming new administration.
Market volatility and Investor Sentiment - Elections often bring uncertainty, which can lead to increased market volatility. Investors may react to potential changes in economic policy, causing fluctuations in mortgage rates. For example, if the newly elected administration is expected to implement policies that could lead to higher deficits or inflation, investors may demand higher yields on bonds, which in turn raises mortgage rates.
Government Spending and Deficit - If the newly elected administration is expected to increase government spending or implement policies that could lead to higher deficits, this can drive up interest rates. Higher rates can result in higher mortgage rates. For instance, the proposed tax cuts and increased spending under a new administration can lead to higher deficits, which can cause bond yields to rise and mortgage rates to follow suit.
Inflation Expectations - Policies that are perceived to be inflationary, such as tariffs or increased government spending, can lead to higher inflation expectations. This can cause investors to demand higher yields on bonds, which in turn raises mortgage rates. For example, if the new administration plans to implement significant fiscal stimulus, this can lead to higher inflation expectations and higher mortgage rates.
Federal Reserve Actions - Federal Reserve rate reductions had little impact on mortgage rates when they arrived, mainly due to markets had already priced in expectations of those cuts. The Federal Reserve may adjust its monetary policy in response to economic conditions and political changes. While the Fed operates independently, its decisions on interest rates can influence mortgage rates. For example, if the Fed decides to cut interest rates to stimulate the economy, this can lead to lower mortgage rates. However, if the Fed is concerned about inflation and decides to keep rates higher, this can lead to higher mortgage rates.
For potential homebuyers or those looking to refinance, the general advise is to remain informed, and to stay focus on financial readiness rather than trying to time market shifts. Stay close-touch with your preferred loan originator and be ready to pull the trigger when the window of opportunity arrives.
Please be advised that rates fluctuate daily (at times hourly) and markets move very fast anticipating or responding to market news. Forecasting the trajectory of mortgage rates is difficult, given that rates are influenced by many factors, from government spending and the economy, to stock and bond market gyrations, housing demand, geopolitical tensions and global economic trends. Post-election - hopes are growing that a degree of calmness could reemerge in the economy with the election out of the way. People like certainty and we have certainty now on what the next administration is.
Check your current market rates here and let's get ready together.