Fed Takes Action

Last Week in Review: Fed Takes Action

This past week the Federal Reserve cut the Fed Funds Rate for the third time this year, by .25%. Along with the rate cut, the Fed released a statement that suggested a "pause" in further cuts, but stated they will be ready to act again should "slowing global conditions" continue or if inflation declines further.

Speaking of inflation, it is important to remind ourselves that the Fed rate cut does not affect home loan rates. Home loan rates are slightly higher than they were right before the Fed started cutting rates in July. The main driver of long-term rates is inflation. If inflation goes up, long-term rates go up. The opposite is also true.

With that said, here's an important quote from Fed Chairman Jerome Powell yesterday: "I think we would need to see a really significant move up in inflation that's persistent before we would consider raising rates to address inflation concerns." This means that the Fed is not likely to hike rates anytime soon, and long-term rates should not go too high too soon either because there is no threat of high inflation at this time.

Bottom line: home loan rates are near three-year lows and this week's modest price improvement can be quickly erased should good news regarding U.S./China emerge.