The Federal Reserve is expected to make a pivotal move this Wednesday, slashing interest rates for the first time since it halted its historic rate hikes. Following 11 rate hikes between March 2022 and July 2023, which brought the Fed’s primary interest rate 5% higher than where it started, the question isn’t if the Fed will cut rates, but how much.
The Fed’s aggressive rate hikes came in response to soaring inflation, which peaked at 9% in June 2022. While inflation has since cooled significantly, reaching 2.5% in August 2024, the labor market is slowing down. This shift has prompted the Fed to refocus its strategy from battling inflation to stimulating economic growth.
The decline in mortgage and Treasury yields is a crucial indicator of the Fed’s policy shift. Mortgage rates, which skyrocketed to a 23-year high of 7.8% in October 2023, have since fallen to 6.2%. Similarly, the 10-year Treasury yield, which hit 5.0% in late 2023, is now down to 4.7%, signaling that longer-term interest rates are adjusting in anticipation of the Fed’s rate cuts.
The real estate market has felt the strain of higher rates as homebuyers grappled with mortgage rates that peaked at 8%. With rates dropping and the Fed poised to cut rates further, potential homebuyers could see more favorable conditions on the horizon.
What’s next? Experts like Danielle Hale, Chief Economist at Realtor.com, expect the Fed to cut rates by 25 or 50 basis points. While the precise cut remains to be seen, one thing is clear: The tide has turned. A rate cut will ease borrowing costs, from mortgages to consumer and business loans.
