- The Federal Reserve cut interest rates by 0.5%, lowering the federal funds rate to between 4.75% and 5%, the first cut since 2020.
- The move follows lower inflation and higher unemployment, with mortgage rates falling in anticipation, potentially reviving home sales.
- Despite falling mortgage rates, the Fed warns that housing inventory issues remain, which will limit the impact on affordability and market recovery.
The Federal Reserve has lowered its benchmark interest rate by 0.5%, marking the first cut since 2020, as reported in Globest.
Tale of The Tape
The federal funds rate now stands between 4.75% and 5%. The cut is seen as a response to shifting economic conditions, with the central bank aiming to stabilize the economy amid mixed signals.
The rate cut came as inflation nears its 2% target and unemployment rises to 4.3%.
Impact on Mortgages
Mortgage rates, while not directly tied to the Fed’s rate, are influenced by similar economic conditions. The average rate for a 30-year-fixed mortgage dropped to 6.15%, the lowest in two years.
Mortgage applications for purchases and refinances also saw upticks, increasing by 5% and 24% respectively. Experts suggest that lower mortgage rates may provide some relief to the housing market, which has struggled with high borrowing costs.
Challenges Persist
While lower interest rates may help ease mortgage costs, Fed Chair Jerome Powell cautioned that the cut alone will not resolve ongoing inventory shortages.
“The inventory crunch that has slowed sales isn’t something the Fed can fix,” Powell noted, pointing to broader market dynamics and federal policies as key factors.
Signs of Recovery
Despite these challenges, home sales are already showing signs of recovery, with new home sales rising 15% last month. Redfin economist Chen Zhao highlighted that many buyers and sellers have already adjusted to expectations of lower rates.
However, the inventory shortage will continue to create competition among buyers, which may limit how quickly the market stabilizes.
