The Fed’s rate cut came in response to inflation heading closer to the 2% mark.  (iStock )

The Federal Reserve just cut interest rates for the second time this year, a move that was largely expected as inflation continues to drop. The Fed lowered rates by a quarter of a percentage point to 4.5% to 4.75%.

The decision came on the heels of the lowest rise in inflation since 2021. The Consumer Price Index (CPI) technically increased by 0.2% in September, but this rise was minimal compared to what consumers have seen in the last few years.

“Unexpectedly low October job growth came on the heels of better-than-expected labor market data in September that has since been revised lower,” Realtor.com Chief Economist Danielle Hale said in a meeting about the cuts.

“These data remind decision makers that it is important to consider broad trends rather than any single piece of information. As a whole, the totality of the data suggests that the labor market continues to slow, and the risks of cooling too fast or too slow are likely more balanced than was thought in early October,” Hale said.

Back in September, the Fed initially cut rates by half a percentage point to 4.75% to 5%. Both rate cuts were in response to inflation inching lower towards the 2% mark the Fed has aimed for. At this moment, it’s difficult to determine if any more rate cuts are coming down the line. 

“Financial markets fully anticipated this rate cut, and the FOMC’s statement provides no new information regarding the likelihood of future cuts,” MBA SVP and Chief Economist Mike Fratantoni said in a statement.

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Mortgage rates rise despite Fed’s rate cut

Not all loans and credit will follow these rate cuts. The election and its effects on the economy have a major impact on the outcome of rates as well.

“MBA expects that mortgage rates will remain within a fairly narrow range over the next year, with mortgage rates moving higher on signs of economic strength and more stimulative fiscal or monetary policy, or lower if it’s the opposite,” Fratantoni explained. “Housing markets continue to be primed for a stronger spring homebuying season, boosted by more housing supply and slower home-price growth.” 

On the heels of the rate cuts, mortgage rates actually rose last week from 6.72% to 6.79% for 30-year fixed home loans, Freddie Mac reported. Some economists cite the election results as a potential reason for the turbulent market.

“While it’s not always 100% clear what markets are thinking, they could be expecting a combination of stronger economic growth, more fiscal spending, as well as higher prices and inflation because of more tariffs and lower taxes,” Realtor.com Senior Economist Ralph McLaughlin said.

After the Trump-Vance victory, the 10-year Treasury yield jumped to the highest level since April, and typically, mortgage rates move in the same direction as the 10-year yield. This wasn’t the case this past week.

“While we still expect mortgage rates to stabilize by the end of the year, they will likely be at a higher level than markets were initially expecting prior to election week,” explained McLaughlin.

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The homebuying market has the potential to rebound in 2025

Despite hard times for mortgage rates, there is some optimism among experts in the mortgage industry, although it’s difficult to predict exactly when prices and rates may drop.

“The Fed’s rate cut was widely anticipated and unlikely to herald in much of a change for the housing market. Potential homebuyers will be disappointed to see that mortgage rates remain stubbornly high, as it also moves with the 10-year Treasury, so the markets will only slowly begin to normalize,” CoreLogic Chief Economist Dr. Selma Hepp said in a statement. “We anticipate a much more improved rate environment for homebuying next year.”

Homebuyers have, by in large, been dragging their feet on homebuying. Many homeowners currently have mortgage rates below 6%, so they’re not selling their homes. Homes that are on the market are sitting there for longer as buyers wait for volatile rates to settle.  

“Despite these challenges, Americans remain optimistic about homeownership, and homebuilders are positioned to fill in the gaps, especially if policy makers at the federal, state, and local levels can clear challenges to building,” said Hale.

“While existing home sales continue to tread near 30-year lows, new home sales remain on par with a pace similar to 2019, and even as existing home prices continue to climb, a focus on smaller-footprints and affordability has kept new home prices more steady,” further explained Hale.

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