What does a Fed Rate Cut Mean? CA Mortgage News
As expected, the Fed cut policy rates at their most recent meeting, the second cut this year. At one time, the market was expecting a half-point cut, but the final decision was to drop policy rates by a quarter point.
Notably, in his announcement, Fed Chair Jerome Powell said that if the economy weakens, more rate cuts would be appropriate. Some experts expect to see one more cut this year.
Who is the Fed?
The Federal Reserve Board (the Fed), controls the Fed Funds Rate and the Discount Rate. These are charges for overnight loans from bank to bank or from the Fed to member banks.
What does a cut mean for you?
• It could cause banks to reduce their “prime rates,” which are often used to calculate interest on consumer products like credit cards, private student loans, and home equity lines of credit (HELOCs). Adjustable Rate Mortgages (ARMs) maybe directly impacted as well.
• Fixed mortgages are typically based on long-term rates, which are not directly affected by Fed rate changes. Fed policy DOES influence mortgage rates, which can change in anticipation of future Fed action. Home loan rates typically follow overall interest rate trends over time.
Experts say that the markets anticipated the cut early and its impact has already been felt, Rates rose in the week before the meeting.
Now, the cut has actually been applied, bond investors (who directly influence rates) are likely to pay most attention to Powell’s forward-looking comments. Which, say that future cuts will depend upon economic data.
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