What to Expect from Jerome Powell’s News Conference After the Fed’s Significant Rate Cut
On September 18, 2024, the Federal Reserve made a notable move by lowering its benchmark interest rate by 50 basis points (bps), bringing it down to a range of 4.75% to 5%. This cut marks a pivotal shift in the Fed’s ongoing battle against inflation and is the first reduction since March 2020, following a period of rate hikes aimed at cooling the economy.
Context Behind the Rate Cut
As inflation and the labor market show signs of cooling, many economists anticipated a rate cut this month. The primary question was not if the Fed would cut rates, but by how much. Traditionally, the Federal Open Market Committee (FOMC) adjusts rates in increments of 25 bps. However, given the current economic landscape, they’ve shown a willingness to implement larger cuts when necessary. In the face of soaring inflation last year, for example, they raised rates by increments of 50 and 75 bps.
In their official statement, the FOMC highlighted their commitment to achieving maximum employment and a long-term inflation rate of 2%. They expressed increased confidence that inflation is moving sustainably toward this target and noted that risks to both employment and inflation goals are now more balanced.
Key Economic Indicators
The Consumer Price Index (CPI), the Fed’s preferred measure of inflation, reported a 2.5% increase year-over-year as of August, a significant decline from 9.1% in mid-2022. Simultaneously, the unemployment rate rose to 4.2%, up from a recent low of 3.4% in April 2023.
Interestingly, market expectations shifted leading up to this announcement. Just a month prior, most traders anticipated a smaller 25 bps cut, but by Wednesday morning, predictions had adjusted to favor a 50 bps reduction, according to the CME Group’s FedWatch tool.
The Importance of Powell’s Tone
All eyes will be on Fed Chair Jerome Powell during his upcoming news conference, where market participants will seek insight into future rate cuts and the Fed’s overall strategy moving into 2025. His tone could provide crucial clues about how aggressively the Fed may pursue further cuts.
Impact on Mortgage Rates and the Housing Market
Mortgage rates, which often align with the 10-year Treasury yield, have already been trending downward. On the morning of the Fed’s announcement, the average rate for a 30-year conforming loan was reported at 6.31%, a decrease from the previous weeks.
Industry experts believe this significant rate cut will exert downward pressure on mortgage rates. Eric Orenstein, a senior director at Fitch Ratings, noted that while a full refinancing boom might not materialize, a 30-year rate approaching 6% could create new opportunities for homeowners looking to refinance.
Charles Goodwin from Kiavi emphasized that while mortgage rates have already begun to adjust, further reductions are necessary for a more robust recovery in the housing market.
JP Kelly, a senior vice president of mortgage at MeridianLink, pointed out that this rate cut will enhance purchasing power for prospective homebuyers. However, he cautioned that high home prices and limited inventory could dampen this potential impact.
Looking Ahead: What This Means for Home Sales
Keller Williams’ chief economist, Ruben Gonzalez, echoed this sentiment, urging caution regarding future home sales. He noted that while rates may continue to decline, much of the adjustment has already been reflected in mortgage pricing.
In summary, as the market digests the implications of the Fed’s significant rate cut, all eyes will be on Jerome Powell’s remarks. The insights he shares could shape financial strategies and expectations for both the economy and the housing market in the months to come.
Conclusion
The Fed’s recent actions and Powell’s upcoming news conference are pivotal for investors, homebuyers, and economists alike. Staying informed about these developments can help you navigate the evolving financial landscape effectively.