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What’s Happening with Interest Rates

Hello everyone. Welcome back to the Mortgage Rundown. Today we are going to talk about what’s happening with interest rates.

Yesterday was a big day for the market. The U.S. Federal Reserve, in a widely expected move, lowered interest rates by a quarter of a percentage point. Their overnight target rate is now in the range of 4% to 4.25%. 

That is only half of the news. The bigger piece is the Fed updated the dot plot. This is the Fed’s forecasts for the remainder of 2025, 2026, and beyond.

The dot plot tells us that there is a lot of disagreement between Fed members. One called for no change on rates. Six members expect no more changes the rest of the year. Two members want another 25-basis-point cuts later this year. Nine members expect 50-basis-point cuts later this year and one member expects 1.25-basis-points lower later this year.

So, as it turns out, the dot plot shows that the Fed is even more dovish than the market expected. But the problem is that it shows a very divided Fed. This could create a lot of uncertainty and volatility.

With the jobs market slowing down so rapidly, the Fed needs to act now. There is a long delay between lowering rates and the boost it provides to the jobs market. At the same time, the Fed is trying to time the impact it will have on inflation, so it doesn’t rise any further.   

This is going to be a very difficult balancing act for the Fed as we head towards the end of the year. Hopefully the inflation data coming out on the 26^th will give the Fed further evidence that inflation is contained.

That’s it everyone from the Capital Markets Desk this week. Thank you all for watching and have a great day.