The first Fed rate cut in 10 years: What does this mean to you?
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This past week, Fed Chair Jerome Powell reaffirmed the Federal Reserve’s dovish position as he testified on Capitol Hill, thereby paving the way for the first Fed rate cut in 10 years later this month.
Mr. Powell used the word “uncertainties” five times in his prepared speech to describe potential headwinds to the U.S. economy. When things are “uncertain”, here or around the globe, it’s the Fed’s job to be “accommodative” and provide easy monetary policy to stimulate growth and investment, and boost confidence.
Here’s what we have to consider now that the Fed is going to cut rates — potentially by as much as .50% on July 31.
Fed rate cuts are designed to weaken the U.S. dollar, promote inflation, stimulate the economy, boost Stock prices, boost confidence, and lift some uncertainty. This is really good news for the economy and housing but at the same time, home loan rates will not move lower in lockstep with a Fed rate cut. In fact, we might see a limit to how low home loan rates move in the near-term as we see how Fed rate cuts make their impact on the economy.
However, there is a tug of war happening which continues to pull our rates lower, and that is the declining global yields in places like Germany, Spain, and Japan. Due to “uncertainties” within their economies, their Bond yields and interest rates continue to decline, and as a result our Treasuries and Mortgage Bonds push higher in price and lower in rate as well.
Bottom line: The Goldilocks scenario for housing continues. We are seeing home loan rates near the best levels in two years and the Fed is about to embark on rate cuts which are designed to help the U.S. economy avoid a recession. Clients should understand that if the Fed is successful, and the recession fears lift, home loan rates may not improve much further.
If you or someone you know has questions about home loans, give me a call. I’d be happy to help.
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