After weeks of speculation, the Federal Reserve’s much-anticipated interest rate cuts appear to be imminent.
Chair Jerome Powell signaled in a speech at the Jackson Hole Economic Symposium on Friday that the central bank would start lowering rates, as inflation fell closer to its 2 percent target and unemployment rose to a higher-than-expected rate.
“The time has come for policy to adjust,” Powell said. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
Pressure to lower rates mounted against the Fed earlier this month when the latest jobs report indicated unemployment had reached 4.3 percent. The number isn’t historically high, though it indicates a sharp upward trajectory since last year, according to Powell.
He added the uptick was sparked by a “substantial increase” in the workforce and a “slowdown from the previously frantic pace of hiring,” not layoffs.
“Even still, the cooling in labor market conditions is unmistakable,” Powell said. “We do not seek or welcome further cooling.”
The Fed began hiking interest rates in 2022 in an attempt to curb rising inflation. Mortgage rates, while not tied to the Fed rate but influenced by similar economic conditions, rose alongside interest rates and slowed the housing market.
Home sales have remained at a sluggish pace since, as would-be sellers held onto historically low mortgage rates from the pandemic and as persistently-high inflation data thwarted the Fed’s earlier promises to drop rates.
Mortgage rates fell to a 15-month low after the release of the jobs report in response to an expected rate reduction. Residential real estate players have been waiting for a drop in mortgage rates to stimulate the housing market, though the first cut likely won’t be a quick fix.
Some experts say it’ll take months before inventory levels recover, though any movement on the rate front is positive news.
“The housing market could see a recovery sooner rather than later,” Redfin economist Chen Zhao told The Real Deal earlier this month. “If you’re a buyer or a seller waiting for the Fed to act, a lot of that is priced in already.”
The Fed is scheduled to meet on Sept. 18, where it’s expected to announce its first in a series of rate reductions over the next year and a half. Mortgage Bankers Association chief economist Mike Fratantoni in a statement described Powell’s remarks as a green light that could set off a gradual chill for mortgage rates.
“Our forecast continues to look for mortgage rates to drift down closer to 6 percent over the next 12 months or so,” Fratantoni said.
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