Mortgage rates whipsaw after a divided Fed issues a rate cut: September 2019 Fed Meeting update

September 18, 2019 - 3 min read

Federal Reserve cuts its rate, but mortgage rates undecisive

A highly debated move — both in markets and within the Fed itself — resulted in a 0.25% rate cut to the federal funds rate.

It’s just the second rate reduction in 11 years. The only other one came after the last Fed meeting on July 31.

Surprisingly, one voting Fed members wanted an even deeper cut of 0.50%. And, more Fed members are now on board for an additional cut in 2019.

Mortgage rates improved in the morning, then turned worse in the hours after the fed meeting. Markets are busy interpreting the data. Don’t want to risk higher rates? Lock in now.

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No easy decision to cut rates

The Fed is in an interesting predicament.

In the face of a strong economy, rising stock market, and ultra-low unemployment, it’s feeling pressure to cut rates to “zero or less,” a recent request from the president that was apparently serious.

Yet this meeting yielded a rate range between 1.75% and 2.0%. A far cry from what President Trump wanted.

Never before has a sitting president been so vocal about his views on interest rate policy.

Yet, the Fed prides itself in being an independent body. Pressure from President Trump shouldn't affect its decisions, at least according to its official stance.

Still, there’s little doubt that the president’s relentless rate-reducing goals are factoring into the decision.

So, the Fed is conducting a balancing act: Keep unemployment low and inflation in-check, while at least partially meeting wild requests from the president. Even though it would never admit to considering that third element.

The Fed certainly isn’t in total agreement to cut rates.

The previous meeting announcement in July revealed that two of ten members of the Federal Open Market Committee (FOMC) dissented on the rate cut decision. (The FOMC is the decision-making body within the Federal Reserve.)

September’s meeting revealed even more division.

A Fed divided

The September 2019 Fed meeting showed vastly dissenting opinions among Fed members.

Only seven of ten voting Fed members approved the actual outcome of today’s meeting.

Only seven of ten voting members approved the actual outcome of today’s meeting: the 0.25% cut. One preferred an even deeper cut of 0.50%. Two members advised to keep the federal funds rate as-is.

A divided Fed? Yes. And that could mean serious uncertainty for mortgage rates.

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How does the Fed decision affect mortgage rates?

Past or present Fed action does not affect mortgage rates all that much. It’s what the Fed will do that changes consumer mortgage rates.

For instance, the Fed could keep rates the same, but announce a huge cut at the end of the year. Mortgage rates would plummet.

Conversely, the Fed could make a 0.25% cut, but then plainly say that there were no more cuts coming in the near future. Mortgage rates would likely rise.

The future is vastly more important than the present when it comes to markets. And markets are what determine mortgage rates.

All eyes were on the post-meeting announcement to decipher clues about future rate cuts and policy.

The September meeting announcement suggested that future rate cuts were still in play.

The September meeting announcement suggested that future rate cuts were still in play.

One of ten voting FOMC members wanted a deeper cut than even very optimistic analysts expected. James Bullard, president of the Federal Reserve Bank of St. Louis, preferred a 0.50% cut instead of just 0.25%. That voice could increase the chance of another cut in 2019.

Additionally, projection materials released by the Fed confirm that it’s considering another cut — and soon. In June, no FOMC participants predicted the fed funds rate between 1.5% and 1.75% — a quarter point lower than today’s level. Now, seven of 17 participants are calling for that range, which would equate to one more rate cut this year (there are more FOMC participants than voting members).

That extra potential for another rate cut should help mortgage rates. But for now, rates are decisively undecisive about what to do.

Mortgage rates were hitting the lowest levels this week just following the announcement, then began to rise.

Lock in low rates in the wake of the Fed meeting

Mortgage rates are holding to levels seen earlier this week.

Lock in your mortgage rate while markets are reviewing the data. Market interpretation of that data can change quickly and unexpectedly, so don’t wait to lock if you have found a rate you like.

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Tim Lucas
Authored By: Tim Lucas
The Mortgage Reports Editor
Tim Lucas spent 11 years in the mortgage industry before moving into the world of digital media. He's helped thousands of families buy and refinance real estate at banks and mortgage companies and now continues that mission through industry-leading content. Tim has been featured in national publications such as Time, U.S. News and World Report, MSN, Scotsman Guide, and more.