On Wednesday, January 29, 2025 the FOMC will meet for the first time in 2025. The Fed cut rates three consecutive meetings at the end of 2024. The Federal Funds Rate is down a full 1.0% from where it was in early September. The FOMC cut rates three time, but mortgage rates went up each time. Why? The mortgage market expected these moves by the Fed already building each rate cut into mortgage bond pricing. The FOMC started interest rate cuts in September, but mortgage rates moved in the opposite direction. The Federal Funds Rate immediately impacts short term borrowing. For consumers Credit Card rates, automobile loans rates , Home Equity Lines of Credit Rates will move lower after the Fed moves. Mortgage rates work differently. The average mortgage rate has been over 6% for over two-years. They have remained stubbornly above 6%, reaching over 7% again at the end of the year, even with Fed rate cuts, prompting some to say “Sixes are the new normal”. Mortgage rates are closely aligned to U.S. Government Bonds particularly the U.S 10-Year Treasury Bond. Inflation concerns remain elevated. Inflation has not abated as quickly as hoped keeping demand for longer term bonds weak. The FOMC meets again the 27th. What is the Fed expected to do? Based on the Fed Futures Market no rate cut is expected. In fact, according to the Fed Futures Market, we will not a see a Fed Rate cut until June. Inflationary pressures remain keeping mortgage rates elevated. We have seen mortgage rates drift lower over the past week, which is a good sign, but not the sign of a major shift to lower rates. We expect interest rate volatility for the near future. Contact your FDM Investment Specialist today for more details.
