Fed Cuts Rates by 25 Basis Points in November

November’s Fed cut

The Federal Reserve made its second consecutive rate cut at its November meeting, lowering the federal funds target range by 25 basis points.

The central bank began its current plan to bring down inflation in March 2022. With the most recent inflation reading falling to 2.4% in September, the voting committee deemed another rate cut appropriate.

“Financial markets fully anticipated this rate cut,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association. “The big impact on rates this week was clearly the election. As results rolled in, longer-term rates jumped higher. Investors expect somewhat stronger economic growth, higher inflation, and larger deficits.”

The Fed’s role and November’s FOMC meeting

The Fed doesn’t technically set mortgage interest rates. Multiple factors dictate mortgage rate movements, but they do intrinsically correlate with the central bank’s policy actions.

At its November meeting, the Federal Open Market Committee (FOMC) cut the federal funds target range by 25 basis points after September’s 50-point cut. Prior to that, the Fed held the target range steady eight consecutive times. The U.S. annualized inflation rate decreased for the seventh-straight month, falling to 2.4% in September from 3.5% in March, according to the U.S. Bureau of Labor Statistics. It does still remain above the FOMC’s goal of 2%.

In its post-meeting statement, the Committee said it “judges that the risks to achieving its employment and inflation goals are roughly in balance” but “would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of [its] goals.

The annualized inflation rate hit a 41-year high of 9.1% in June 2022 but mostly followed a downward trajectory since. After the FOMC’s previous meeting in September, industry experts and economists forecasted at least one more rate cut in 2024 with the potential for more down the road.

In addition to cutting the fed funds rate by 25 basis points, the FOMC will also continue reducing its holdings of Treasury securities, mortgage-backed securities and agency debt. As always, the Committee will adjust its policies as necessary based on shifting economic data, outlooks, and risks. The next FOMC meeting will take place on Dec. 17-18, 2024.

How will mortgage rates react?

After climbing to a 23-year high in 2023, mortgage interest rates gradually declined in 2024 before growing in October through early November. The latest cut should help drive interest rates downward.

The day following each of the two previous rate pauses in June and July, the average 30-year fixed-rate mortgage (FRM) posted a week-over-week decrease of four (0.04%) and five (0.05%) basis points, respectively, according to Freddie Mac. The day following September’s 50-point cut, the 30-year FRM fell 11 basis points from the week prior.

Interest rates typically rise alongside increases to the fed funds rate and decline after cuts. In its statement, the FOMC also said economic activity keeps expanding “at a solid pace,” while job gains slowed and the unemployment rate inched up but remains low.

Inflation has progressed toward the FOMC’s 2% goal, but needed to be seen as sustainable for a cut to be called for. A Fed cut followed by decreasing mortgage rates would surely be a welcome sign for house hunters, many of who have been sidelined due to being priced out of the marketplace.

Should you lock in a mortgage rate?

Because multiple economic and geopolitical factors influence mortgage rates, they’re subject to a lot of volatility.

Although projections can shift, the FOMC’s latest action signaled the economy has continued cooling enough that a rate cut was seen as appropriate. As long as the pace of inflation keeps slowing sustainably, additional cuts could be on the horizon. Regardless of where rates go, you should always negotiate and get creative in budgeting. Building home equity is one of the biggest advantages of owning property and most common ways to accumulate wealth.

If you’re ready to begin your path to homeownership, talk to a local mortgage professional to see what rates and loan types you qualify for.