FED Cuts Funds Rate By 25 bps

In a move anticipated by investors and financial markets well before Thursday, the Federal Reserve announced a quarter-point cut to its federal funds rate. 

“The labor market has cooled from its formerly overheated state and remains solid,” FOMC Chairman Jerome Powell said in his opening remarks at the Fed’s Open Market Committee meeting. “Inflation eased to 2.1% as of September. We continue to be confident that with an appropriate recalibration of our policy stance, strength in the labor market can be retained." He added, “Growth of consumer spending has remained resilient, in contrast to activity in the housing sector, which has been weak.”

Policy is well positioned to deal with risks and uncertainties the committee faces when addressing the risks and goals of its dual mandate, Powell went on to add, and the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.

Perhaps more unpredictable than Thursday's 25-bps cut was members’ unanimous vote to lower the target range, which follows the Fed’s monumental 50-basis point September rate cut – its first since 2020. 

“Volatility in treasuries has been the bigger catalyst for recent mortgage rate movement as opposed to the Fed’s rate cuts so far,” Eric Orenstein, senior director, Fitch Ratings, commented following the announcement. “Still, the Fed’s easing cycle should take pressure off origination volumes in 2025 as more mortgages become ripe for refinancing.” 

Home purchase demand has become more sensitive to mortgage rates in the current environment. The 30-year fixed-rate mortgage (FRM) averaged 6.79% Thursday, inching up from last week’s 6.72%, Freddie Mac reported. This came as purchase applications declined 10% over the past month. 

Charles Goodwin, senior director of sales at Kiavi, a tech lender that serves real estate investors, also shared his thoughts on the outcome.

“Since the last Fed meeting, we have been reminded that bond markets and mortgage rates don't always align with changes to the federal funds rate,” Goodwin said. “The narrative of continued U.S. economic strength, pesky inflation, and an expanding deficit have dominated the headlines, and have overpowered any notion of mortgage rates coming down in the short term. That being said, despite the increase in mortgage rates, the leading indicators of the housing market show that home buyer demand remains steady, and resale inventory remains tight. This is a good sign for real estate investors as they look forward to 2025.”