Join us at Inman On Tour: Nashville to elevate your real estate success! Connect with industry leaders and top speakers for powerful insights, cutting-edge strategies, and valuable connections. Achieve your boldest goals with Music City magic. Register now.
At their first meeting of the year, Federal Reserve policymakers decided to leave short-term interest rates unchanged. They also continued their “quantitative tightening” strategy, which is helping to keep long-term interest rates elevated by allowing billions of dollars in Treasurys and mortgages to roll off the central bank’s books each month.
Mike Fratantoni
Mortgage Bankers Association Chief Economist Mike Fratantoni stated that Fed policymakers are observing solid growth, a strong job market, and inflation above the Fed’s target.
Following a full percentage point decrease in short-term rates in 2024, the Fed’s decision to maintain its target for the federal funds rate between 4.25 percent and 4.5 percent was widely expected by economists and bond market investors.
TAKE THE INMAN INTEL INDEX SURVEY FOR JANUARY
Yields on 10-year Treasury notes, a key indicator for mortgage rates, saw a three basis point increase on Wednesday, while rates on 30-year fixed-rate mortgages monitored by Mortgage News Daily dropped by one basis point.
Selma Hepp
CoreLogic Chief Economist Selma Hepp noted that the economy remains resilient against long-term setbacks, indicating that the Fed may not need to continue cutting rates. With the economy projected to maintain growth of 2 percent or more, further monetary easing may not be necessary in the near future.
As inflation has slowed down in recent months, mortgage rates have been on the rise. The focus for investors funding most mortgages now shifts to whether the Fed will cut rates further in the remaining meetings of the year.
Fratantoni mentioned that all statements from Fed policymakers will be closely scrutinized to determine if this is just a pause before more rate cuts or if the current federal funds rate represents the low point for this cycle.
The MBA forecasts only one rate cut this year, anticipating that longer-term rates, including mortgage rates, will remain within a narrow range with the Fed on hold.
Uncertainty surrounding interest rate forecasts includes the potential inflationary impact of tariffs, deportations, and tax cuts proposed by the Trump administration.
During a press conference following the Federal Open Market Committee’s meeting, Fed Chair Jerome Powell acknowledged increased uncertainty due to significant policy shifts, but emphasized the Fed’s commitment to achieving its goals.
For more information, click here.
Investors in futures markets are predicting a 60 percent chance of at least two rate cuts totaling half a percentage point by the end of the year. On the other hand, economists at Pantheon Macroeconomics believe the economy is slowing down faster than some investors anticipate, forecasting four rate cuts by the end of the year, totaling a full percentage point. Pantheon Chief U.S. Economist Samuel Tombs attributes this forecast to expectations of payroll growth slowing down due to high borrowing costs, economic policy uncertainty, and other factors. The Federal Reserve plans to continue reducing its holdings of Treasurys and mortgage-backed securities each month. The Fed’s goal is to offload most of its mortgage debt and hold mostly Treasurys, but the current market conditions may lead to elevated mortgage rates in the near term. Mortgage industry experts expect rates to remain high for the rest of the year, with little chance of a significant rebound in existing home sales. Fed rate cuts are also not expected to be as aggressive as previously thought, further contributing to the forecasted high mortgage rates. To subscribe, please click the link provided. For any inquiries, you can also email Matt Carter.