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The Fed has delivered another interest rate cut, but unfortunately for homebuyers it doesn’t necessarily mean imminent relief for mortgage rates.
As expected, the Federal Reserve cut its overnight policy rate by 0.25 percentage points on Wednesday, bringing the rate down to a new range of 4.25% to 4.5%. The new range represents a full percentage point reduction from the recent peak range of 5.25% to 5.5%, where rates held steady for year before the recent cutting cycle began in September.
Because the Fed’s latest cut was widely expected by investors, it is already largely priced in to the long-term bond markets that ultimately determine interest rates on home mortgages.
That means the latest rate decision itself is unlikely to move mortgage rates dramatically. For the week ending Dec. 12, rates for 30-year fixed mortgages averaged 6.6% after three straight weeks of declines, according to Freddie Mac.
In a troubling sign for mortgage borrowers, forecasts released by Fed policymakers alongside the rate decision took a hawkish turn, projecting only two further quarter-point cuts through 2025, down from four in the projection issued in September.
As well, the vote to cut rates this time around was not unanimous, signaling that some policymakers are concerned by the current pace of loosening. Taken together, those signals could work to drive mortgage rates higher in the coming days and weeks.
Fed Chair Jerome Powell‘s comments at a press conference later this afternoon also have the potential to move markets, if his outlook for 2025 diverges from the consensus in capital markets.
The Realtor.com® economic research team projects that mortgage rates will continue to average above 6% through 2025, dropping slowly to around 6.2% by the end of the year.
Developing story, check back for updates.