Citing that economic activity has continued to expand at a solid pace, the Federal Open Market Committee (FOMC) today voted to cut the fed funds rate by 0.25% to the 4.25% to 4.5% range.
In its statement, the FOMC says a cooling labor market, increased unemployment rate snd lower inflation that has made progress toward its 2% objective were factors in its decision to cut rates.
Committee member Beth M. Hammack was the lone dissenter, saying she preferred to maintain the target range for the federal funds rate at 4.5% to 4.75%.
The rate cut was anticipated by most economists and industry watchers.
However, the Fed has signaled that we can expect fewer rate cuts in 2025 than was expected.
“The FOMC cut its rate target by another 25 basis points as the market had anticipated,” says Mike Fratantoni, senior vice president and chief economist for the MBA, in a statement. “However, while the cut was expected, and the statement was little changed, FOMC members’ projections regarding the future path for the federal funds rate moved up in the near term, and for their expectations for the longer-term neutral rate. The median member now expects that there will only be two cuts in 2025 and that the federal funds target will be 3 percent in the long run. MBA forecasts that the federal funds rate will only drop to 3.75 percent this cycle.”
“The projections also showed somewhat faster growth and somewhat higher inflation in the near term relative to the projections in September,” Fratantoni says. “While the unemployment rate has increased over the past year, and inflation has trended down, in recent months, inflation has plateaued. It was not surprising to see a dissent at this meeting, with one member voting to keep rates steady.”
Fratantoni notes that this rate cut has already been priced into the mortgage market.
“Expectations that the Fed will cut rates less than had been anticipated have been priced into the market in the form of higher 10-year Treasury and higher mortgage rates in recent weeks,” he says. “[The] MBA’s forecast for mortgage rates moved up after the election, anticipating this change and recognizing the market’s reaction to the likely path for fiscal policy and the deficit. MBA is forecasting that mortgage rates will average close to 6.5 percent over the next few years, with significant volatility around that average.”
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