Housing market boost? Fed initiates rate cut cycle

"Fed officials have acknowledged that inflation remains above their 2% annualized target, but they pointed to softening labor market data in the decision to lower rates, suggesting their stance may have become overly restrictive. Inflation accelerated in August, rising 2.9% year over year compared to 2.7% in July, according to the U.S. Bureau of Labor Statistics. On a monthly basis, inflation increased 0.4%, double July's 0.2% figure. Meanwhile, nonfarm payroll employment rose by only 22,000 jobs and the unemployment rate held firm at 4.3%."

"Markets have swiftly priced in a more dovish Fed, with three rate cuts expected by year-end. That shift has pulled 10-year Treasury yields lower, dragging mortgage rates down as well. HousingWire's Mortgage Rates Center showed 30-year conforming loan rates averaging 6.45% on Tuesday 19 basis points lower than a week earlier. Combined with a narrowing mortgage spread, mortgage rates stand at 11-month lows offering home buyers a welcome affordability boost, Williamson said."

The Federal Reserve lowered benchmark interest rates back to a 3.75%–4% range, matching levels last seen in November 2022. Inflation accelerated in August to 2.9% year over year, with monthly inflation up 0.4% versus 0.2% in July. Nonfarm payrolls rose by only 22,000 and the unemployment rate remained at 4.3%. The rate reduction was influenced by evidence of a cooling labor market and concerns that policy had become overly restrictive. Financial markets quickly priced in a more dovish Fed with multiple cuts expected, pulling Treasury yields and mortgage rates lower and improving housing affordability modestly.

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