During the week of September 16, mortgage rates held steady from the previous week, with the 30-year fixed mortgage rate standing at 6.125%. Interestingly, rates have been on a gradual decline since the start of September.
Market watchers are keenly focused on the Federal Reserve meeting scheduled for Wednesday, September 18. While many investors are hopeful for potential rate cuts from the Fed, there’s a divide in opinions about how significant those cuts might be. According to the CME Group’s FedWatch Tool, there’s currently a 65% chance of a 50-basis-point cut, while a 25-basis-point reduction has a 37% likelihood.
As the Fed prepares for its September meeting, a variety of factors are under consideration. Should policymakers decide on a substantial rate cut, it could signal increased concern regarding the economic outlook. However, it’s essential to recognize that the effects of monetary policy generally take over a year to fully unfold in the world’s largest financial system. This delay could provide a rationale for a deeper cut, especially if the aim is to avert further slowdowns in the financial landscape. Greg McBride, Chief Financial Analyst at Bankrate, stated, “Both options for a rate cut are reasonable. While the economy doesn’t exhibit signs of immediate collapse, advocating for a 50-basis-point cut is largely about risk management, ensuring the Fed stays ahead of the curve.”
Looking to the past may offer valuable insights as the Fed approaches its decision. When confronted with inflation pressures in 2022, the Fed initially implemented a modest 25-basis-point increase before later raising rates by 50 and 75 basis points. This cautious approach allowed the market to adjust more smoothly to the changes, which may influence the Fed’s considerations regarding rate cuts in the current environment.
