The Fed has decided to lower the target range for the federal funds rate by 1/2 percentage point (50 basis points). In a statement, the Fed said that it “has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance.” However, it also noted that the “economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
What happens now?
The effects of a rate cut are not always immediate or obvious. Some of the expected changes have already occurred in anticipation of a rate cut, so look for a muted effect in some areas.
The New York Times provided an analysis of what consumers can expect:
- Car loans: These often follow the five-year Treasury note, which is influenced by the Fed’s key rate, says the Times, so it advises consumers to look for more discounts and incentives.
- Credit cards: Look for lower rates, eventually. However, these rates are generally over 20% percent, so consumers should avoid carrying balances.
- Mortgage rates: These may not change as much as hoped or expected, says the Times. It noted that rates had fallen to their lowest levels since February 2023. It did note that rates on 30-year fixed-rate mortgages aren’t directly tied to the Fed’s rate, but rather are tied to the yield on 10-year Treasury bonds, which are influenced by a variety of factors.
Indeed, although the National Association of Realtors hasn’t yet issued a statement on the rate cut, it did foretell the change in a Sept. 10 statement. The rate change may already be baked in. “The expectation of a Fed rate cut typically pushes down long-term rates like the 10-year Treasury yield, which is closely tied to the 30-year fixed mortgage rate,” said the NAR. “This is why mortgage rates tend to decline in anticipation of a Fed rate cut, even before it officially happens.”
How low can mortgages go?
So what can we expect for mortgage rates in the coming weeks and months? “This is a very challenging question,” said the NAR. Anticipating the 50-basis-point cut — which is what happened — the NAR said that “mortgage rates could fall to around 5.9% by year’s end.” It pointed out that as of mid-September, mortgage rates were already over 100 basis points lower than they were at the end of May 2024.
Of course, much of the real estate market is driven by local supply and demand, so be sure to speak with a real estate professional. Indeed, don’t make any immediate financial decisions or assumptions based solely on the rate cut — work with qualified experts.