Investors who finance most mortgages have already priced in several rate cuts, so further declines may depend on what the “dot plot” released next week shows about the outlook for the pace of future rate cuts.
Refine your business model, master new technologies, or find a strategy to capitalize on the next market boom. Inman Connect New York We’re ready to take a bold step. Our next chapter is beginning. We want you to join us. would you like to join Join thousands of real estate industry leaders from January 22-24, 2025.
The Federal Reserve is widely expected to start cutting interest rates starting next week, and new data that lends some credibility to the argument that the economy is slowing could make policymakers more inclined to start with bolder moves.
Stocks have risen broadly this week as investors adjust to the possibility that the Fed will cut short-term interest rates by 50 basis points on Sept. 18, rather than a more cautious 25 basis point cut. A basis point is 1/100th of a percentage point.
But investors who finance most mortgages are already pricing in several rate cuts from the Fed this year and next, and whether mortgage rates continue to fall may depend on next week’s release of a “dot plot” that shows the pace of future rate cuts policymakers expect.
of CME FedWatchToolsFed Investments, a research firm that tracks futures markets to gauge investor sentiment toward future Fed moves, raised the probability of a 50 basis point cut on Sept. 18 to 45% from 15% on Wednesday.
The shift in bets in futures markets came following Thursday’s announcement. Producer Price Index PPI (Producer Price Index) and weekly, which track the prices of wholesale goods and services First time unemployment insurance claim.
Both sets of data released on Thursday supported the argument that the steady decline in inflation in recent months is not temporary, in contrast to the big, unexpected increase in prices in August revealed in the latest Consumer Price Index (CPI) report.
Core inflation, which excludes volatile energy and food prices, rose 3.26% year-on-year in August, driven by increases in housing, airfares, auto insurance, education and clothing costs, according to Wednesday’s Consumer Price Index (CPI) report.
But the Fed A favorable indicator of inflation The personal consumption expenditures (PCE) price index grew 2.5% year-on-year in July, 0.5 percentage point above the Fed’s 2% target.
Thursday’s PPI report has a major impact on markets as it will be used to calculate the PCE Price Index for August. schedule Scheduled to be released on September 27th.
Economists at Pantheon Macroeconomics said Friday they still expect the Fed to cut the federal funds rate by only 25 basis points next week.
However, the latest Producer Price Index (PPI) and Consumer Price Index (CPI) data suggest that inflation will fall to the Fed’s 2% target by the second quarter of 2025, which should allow the central bank to ease monetary policy more aggressively as unemployment rises, Pantheon economists said Friday in their latest U.S. Economic Monitor.
Jobless claims increase slightly
Thursday’s employment report showed that initial jobless claims rose slightly last week to 230,000 but remained below the July average of 240,000.
However, Pantheon economists believe the higher number of jobless claims in July was “primarily due to disruptions from Hurricane Beryl and a higher than usual concentration of auto plant closures for retooling.”
Moreover, employers added just 142,000 jobs last month, and “if tight credit conditions and slowing growth in real household spending weigh further on hiring, as we expect, job growth will continue to slow sharply,” Pantheon economists predicted.
Mortgage rates fall all summer
Track your rate lock data Optimal Blue Rates on 30-year fixed-rate conforming mortgages have fallen more than 1 percentage point since hitting a 2024 high of 7.27% on April 25. Rates on 30-year conforming loans hit a 2024 low of 6.10% on Wednesday, with borrowers seeking FHA loans locking in their rates at an average of 5.92%.
But whether mortgage rates continue to fall may depend on the “dot plot” — the Fed’s summary of its economic outlook to be released on Thursday that reveals how far members of the Federal Open Market Committee think interest rates should fall in the coming months.
Futures market investors are expecting short-term interest rates to fall by at least 2.25 percentage points by mid-2025, and most mortgage lenders are already factoring that expectation into the yields they are willing to accept on mortgage-backed securities (MBS).
Pantheon forecasters expect only a small cut next week, but see the Fed continuing to cut short-term rates aggressively in the coming months, cutting them by a total of 2.75 percentage points by the middle of next year.
Pantheon expects the 10-year Treasury yield, a reliable indicator of future mortgage rate movements, to fall just 58 basis points over that time frame, given that much of the Fed’s expected rate cuts are already priced into longer-term interest rates.
But mortgage rates may have room to fall further.Spread the wordThe spread between 10-year Treasury yields and 30-year fixed-rate mortgage yields continues to narrow as MBS investors become less concerned about prepayment risk.
Get Inman’s Mortgage Brief newsletter delivered straight to your inbox: our weekly roundup of all the biggest mortgage and settlement news from around the world, delivered every Wednesday. Click here to subscribe.
Email Matt Carter
