Fed Rate Cut: Potential Impact on Mortgage Rates and Monthly Savings

by Luis Morales

Yesterday, the Federal Reserve reduced its key interest rate by 0.25%, lowering it to a range of 4.5% to 4.75%.

This second consecutive rate cut aims to reduce borrowing costs, stimulate economic growth, and manage unemployment.

Fed Chair Powell emphasized that monetary policy adjustments will continue to focus on achieving maximum employment and price stability.

The 10-year bond yield enjoyed a nice rally reaching a low of 4.3% from 4.45% set right after the election.

This movement follows recent data showing a slight increase in weekly jobless claims, which rose from 218,000 to 221,000, below market expectations.

Additionally, the preliminary Q3 report on productivity and unit labor costs showed a 2.2% increase in productivity (slightly under the 2.3% forecast) and a larger-than-expected 1.9% rise in labor costs, compared to the anticipated 0.5%.

The likelihood of another 25-basis-point rate cut in December is now around 75%.

Mortgage rates are generally linked to the yield on the 10-year Treasury note. According to Freddie Mac, the average rate for a 30-year fixed mortgage for the week of November 7th is around 6.79%.

With the anticipation of another rate cut and a modest outlook for labor costs, mortgage rates should continue to come down as we head into the winter season.

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