While Jerome Powell made it known he wouldn’t be bullied into lowering rates, he indicated that deteriorating economic data may warrant cuts regardless.
During a speech at Jackson Hole this morning, he laid out the risks the U.S. economy faces.
It’s essentially a balance between rising unemployment and possible one-time shifts in prices due to tariffs.
But given that really ugly July jobs report, it’s clear the labor issue is superseding the inflation battle going forward.
As such, more Fed rate cuts appear to be on the way and bonds rallied on the news, meaning mortgage rates are also moving lower on the day.
Bond Yields Drop as Powell Signals More Rate Cuts Ahead
While the Fed doesn’t set consumer mortgage rates, it does set monetary policy, which can have a trickle-down effect.
Powell noted today that there’s been a slowing in GDP growth, a slowdown in consumer spending, and both a slowing supply and demand for workers.
The clear takeaway is that the economy is slowing, and as such, restrictive monetary policy put in place in 2022 can begin to unwind some more.
If you recall, the Fed raised rates 11 times in 2022 between before cutting three times late last year.
More cuts were anticipated, but then we had the tariffs and the global trade war, along with some surprise jobs reports that indicated things may have been hotter than expected.
The July job report put that to bed given how poor it was, especially the accompanying revisions for prior months.
So much so that even Powell appears to be brushing aside the tariff price increases in favor of labor concerns.
He seemed to conclude the tariffs will result in a “one-time shift in the price level” that is expected to be short-lived, though it may not happen “all at once.”
Regardless, given monetary policy is still restrictive, he noted that “the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
In other words, expect more rate cuts, including a quarter-point at the September meeting in less than a month.
Over at CME, the odds for a rate cut in September increased from 75% yesterday to 87.3% today.
Bonds liked the news and accompanying bond yields fell substantially, with the 10-year yield falling about eight basis points to 4.25%.
30-Year Fixed Mortgage Rates May Go Sub-6.5%
The 30-year fixed will follow bond yields lower today and could be at or below 6.50% on the news.
I’ve argued recently that mortgage rates below that key level could result in a psychological shift for prospective home buyers.
While the monthly payment between say 6.75% and 6.50% isn’t much different, there’s a sentiment factor to consider.
When rates are falling, home buyers gain confidence, especially the thought of being able to refinance to a lower rate in the future.
This optimism can get a lot of the fence-sitters off the fence if they believe it’s the start of something bigger.
However, I should point out that falling rates mean the economy is slowing, and with that could come more layoffs and job losses.
That means some prospective home buyers could no longer be eligible for a mortgage, and home prices could continue to moderate as well.
There’s also a need to temper one’s expectations on just how much mortgage rates could drop.
While today’s speech basically solidified the upcoming rate cut, Powell did warn that, “Monetary policy is not on a preset course.”
The FOMC will continue to monitor the data, and there are many important reports ahead, including the Fed’s preferred inflation gauge PCE on August 29th, followed by the jobs report on September 5th, then CPI on September 11th.
All those reports can change things between now and the next Fed meeting.
Which brings up an important point. The move lower in mortgage rates could be fully baked in already based on their rate cut expectation.
And if any of those reports surprise to the upside, mortgage rates can certainly rebound higher.
So you need to be careful attempting to time the market, or thinking mortgage rates will be lower on Fed cut day September 17th.
Don’t be surprised if mortgage rates move higher between now and then, and/or rise on the day of the actual cut. It’s happened before and will happen again.
(photo: Federalreserve)
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.
