It’s Fed day and it’s almost a certainty that Jerome Powell will announce a quarter percent drop in the overnight rate. That directly lowers the interest rates on HELOC, credit cards, and cars – – things that are tied directly to short term indices like Prime. Mortgage pricing is at three year highs and has set up mortgage interest rates to make a move lower if the right things are said during the press conference after the meeting.
When the Fed dropped their rate by a quarter percent a year ago, mortgage rates actually increased by one percent over the next month. Likewise in September mortgage rates increased a quarter percent in the weeks following the Fed rate cut. The reason is that mortgage rates had dropped heading into the FOMC meeting but the hawkish tone of the Q&A/economic projections sent a panic of inflation throughout Mortgageland. This month, interest rates have not declined prior to the FOMC closed door meeting, which is why I think we’re due for a little love.
The exception of course will be the if Mr. Powell expresses inflationary concerns as a result of the rate cut. While I do think the stock market will rally to new all-time highs with lower interest rates, the reality is that we’re seeing a slow down in economic activity, the labor market, and exportations.
I expect the drop in interest rates will lead to a spike in homebuying activity, which will be much welcome to anyone reading this.
