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For the first time since December 19, 2024, the Fed has decided on a rate cut. And as predicted by the CME Group & Polymarket, Committee members chose a 25 basis point cut.
Don’t expect a steep drop in interest rates on the heels of this announcement, though. This cut, though long in coming, was widely expected for September, mainly due to weakening in the labor market.
It probably didn’t hurt, either, that President Trump’s newest appointee, Stephen Miran, was sworn in with immediate voting power on Tuesday and participated in the Committee vote. Miran, an economist and investment strategist, replaces Fed governor Adrianna Kugler, who resigned in August.
Powell’s prepared remarks at the press conference mentioned housing only briefly, noting that “activity in the housing sector remains weak.” And the word “uncertainty” came up more than once in his responses to reporters.
But he did point out that the median participant projected the federal funds rate at 3.6% by the end of 2025. And 11 of 19 FOMC Committee members penciled in two more cuts for this year.
What This Means for Mortgage Rates
While the Fed doesn’t directly set mortgage rates, its policy changes ripple through the bond market.
Ahead of yesterday’s cut, mortgage rates already dipped, hitting a new 2025 low of 6.13% on September 16. Yesterday, rates increased to 6.22%, which is still a welcome number compared to 6.59% last month, and closer to 7% earlier in the year.
Data from the Mortgage Bankers Association shows that homeowners and buyers have responded quickly to lower rates. For the week ending September 12, refinance applications increased 70% compared to the previous year, and purchase applications were up 20% YoY.
MBA Chief Economist Mike Fratantoni stated:
“Mortgage rates, along with longer-term Treasuries moving in advance of this dovish shift in monetary policy, reached their lowest point for the year last week, spurring a strong jump in refinance activity. If mortgage rates hold at these levels, origination activity will be boosted, both for homeowners who purchased in the last three years and can realize considerable savings at these rates, and for potential homebuyers, who now have one more reason to look for a home, in addition to increasing housing supply in many markets.”
In short, mortgage rates likely won’t plummet on this single cut, but they are already lower than they were a month ago. For both buyers and homeowners looking to refinance, the coming weeks could present a window of opportunity, especially if rates flirt with the high-5% range.
Housing Mentions During the FOMC Press Conference
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