Fed made right move by doing nothing, says former Fed president Loretta Mester
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Yahoo
3 hours ago
- Yahoo
The Fed is expected to cut rates. Don't expect mortgage rates to follow.
A funny thing happened when the Federal Reserve began cutting interest rates last fall: Mortgage rates actually rose. Now, the central bank is gearing up to cut benchmark interest rates again, and there's a chance something similar could happen once more. The reason? Today's mortgage rates already reflect expectations about the Fed's next move: This week, they hit 6.58%, the lowest level since October 2024. Shop Top Mortgage Rates A quicker path to financial freedom Personalized rates in minutes Your Path to Homeownership A number of economic data releases between now and the Sept. 16-17 meeting could lead to rate swings in the coming weeks. The relationship between the Fed's rate cuts and mortgage rates isn't direct, and mortgage rates are sensitive to a number of other factors, most notably bond yields. Read more: How does the Fed rate decision affect mortgage rates? For mortgage industry professionals, moments like this can be a frustrating time to be in business. Mortgage rates stayed stuck in the high 6% area for most of this year, stymying affordability-stretched buyers and keeping refinancing action limited. Now that rates are finally moving lower, they're fielding more calls from prospective clients. But many customers say they want to wait until September to move forward, in hopes that rates will drop further. 'Oh my gosh, it's my least favorite thing to hear,' said Taylor Sherman, a mortgage loan originator at Barrett Financial Group in Tucson, Ariz. 'I'm like, 'Well, you know, that's already priced in.' Yes, Fed policy determines rates, but it's really about how the market views Fed policy.' When the Fed cuts interest rates, rates on debt tied to the prime rate, like home equity lines of credit and credit cards, typically drop soon after. But the rates on standard 30-year fixed mortgages aren't linked to prime, and often don't react much. Sometimes, like last year, mortgage rates even move higher. Mortgage rates are influenced primarily by 10-year Treasury yields, which move in response to a range of factors like market expectations about inflation, future government borrowing, and what the Fed is doing. Mortgage spreads — the difference between the 10-year yield and prevailing mortgage rates — also play an important role in rates and vary based on other factors like market volatility and demand for mortgage bonds. Read more: What is the 10-year Treasury note, and how does it affect your finances? According to CME FedWatch, traders currently see an 85% chance of a rate cut in September. Those odds are essentially baked into today's mortgage rates, but rates could still oscillate between now and then for a number of reasons. Before the Fed acts, new economic data on August hiring and producer and consumer inflation will be released. Earlier this month, weak jobs data in particular helped push mortgage rates to their current year-to-date lows. Right now, a buyer with $3,000 a month to spend on their home has around $20,000 more in purchasing power than they did in May, when mortgage rates hit their recent peak of just over 7%, according to Redfin. The brokerage's head of economics research, Chen Zhao, said in a statement that homebuyers waiting on the Fed before starting their search might be too late, especially as interest rate volatility is expected to kick up in the coming weeks as new data comes out. Read more: Will mortgage rates ever be 3% again? Bogdan Toderut, a loan officer with Summit Funding in Cumming, Ga., is monitoring inflation and hiring data as he tries to figure out where mortgage rates go from here. 'A lot of times, the market prices in expectations,' Toderut said. 'When you see the big changes, you see them when expectations weren't met.' Although he thinks some of his investor clients might be better off trying to time the market, he advises most buyers to consider overall affordability and their monthly payments over the minutiae of small rate moves. Sign up for the Mind Your Money weekly newsletter By subscribing, you are agreeing to Yahoo's Terms and Privacy Policy After all, mortgage rates can change quickly and unpredictably. When rates hit 6.2% last September, Arkansas-based loan officer Amber Moser prepared refinancing quotes for several dozen clients. None of those deals went forward because the homeowners were holding out for lower rates that never came. Ultimately, they missed out on savings that could have amounted to $300 or $400 a month. Moser, who works for Gershman Mortgage, said she makes a point to educate prospective clients on how mortgage rates are market-driven and move before milestones like Fed cuts. But she, too, warns them that rates are ultimately unpredictable. 'There's no crystal ball, and we have no idea what's going to happen,' Moser said. 'The best bet is, don't try to time the market.' Claire Boston is a Senior Reporter for Yahoo Finance covering housing, mortgages, and home insurance. Sign up for the Mind Your Money newsletter Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Bloomberg
5 hours ago
- Bloomberg
America's Lawyerly Society Can Learn From China's Engineers
Welcome back to The Forecast from Bloomberg Weekend, where we help you think about the future — from next week to next decade. This week we're looking at a new book comparing the US and China. Plus, with the Fed's Jackson Hole meeting coming up, we're checking in on prediction markets tracking the next Fed chair. You can read Bloomberg News' coverage of the Trump-Putin summit here and here.
NBC News
7 hours ago
- NBC News
Chicago Fed president wants to see a 'few months of data' on inflation to gauge economy's health
What does a donut tell us about the state of the economy? Chicago Federal Reserve President Austan Goolsbee thought about that Wednesday as he toured Mel-O-Cream Donuts in Springfield, Illinois. Even inside a donut shop, the effects of tariffs on the economy can be seen. 'It's sort of surprising, because donuts seem like a very local product, and yet they get some ingredients like palm oil that are coming from Indonesia,' Goolsbee said. The Trump administration set tariffs on Indonesia at 19%. 'They have to now figure out what are the tariff rates, and the tariffs went up a significant amount. If that happens, that could have a multi-thousand-dollar impact on their operation,' he continued. But, he added, 'I hope it's not a sign of something more extended or broader in the way that the Covid inflation ... generated its own snowballing, in which it was supposed to go away and it didn't go away.' That tariff will cost Chris Larson, a co-owner of Mel-O-Cream, 'about $4,000 per shipment per week,' he said. And that used to be somewhere 'closer to $2,000 to $2,100 weekly. Now it's going to move up to $4,200 ... for the exact same product.' Goolsbee's visit matters because he's one of just 12 people in the country who get to decide what to do with interest rates. The Fed's rate-setting committee will next decide whether to cut or hold on Sept. 17, and the perspectives of businesses like Mel-O-Cream are instrumental in helping him determine his next vote. Larson's hope? That the Fed will cut interest rates, which would help Mel-O-Cream finance new equipment to cut costs in labor and blunt the impact of tariffs. 'What is the cost of money in order to expand, to upgrade, to update? What do those things look like?' Larson said. 'Those things do concern us, and we would love to see, as everyone would, the interest rates would come down.' Goolsbee said he wasn't yet ready to tie his hands to an interest rate cut in September. 'Let's get a few months of data before we make any conclusions. The hardest thing that the Fed ever has to do is get the timing right at moments of transition,' he said Wednesday on NBC News' 'Here's the Scoop' podcast. 'I think as we go through this fall, September, November, December, all of those are live moments that we could be cutting rates.' Government data Thursday showed that wholesale prices paid by U.S. companies rose much more than expected. Another measure, the consumer price index, showed Tuesday that inflation remained stubbornly high in July. The Fed's target for inflation is 2%, lower than the most recent consumer inflation reading of 2.7% and producer inflation reading of 3.3%. Even with those numbers, the market still anticipates a cut next month. President Donald Trump's sweeping tariffs on hundreds of trading partners around the world could affect the cost of most of the imports that businesses buy from overseas. With a myriad of rates as high as 50%, businesses may be faced with a new maze of rates and tariff bills, as well as the uncertainty that comes with the on-again, off-again tariff rollout. 'The Fed, by law, is supposed to maximize employment and stabilize prices. So it's inflation and employment that are really the twin towers of how we think about setting of rates,' Goolsbee said, underscoring the Federal Reserve's role in the broader economy. 'There are parts of the job market where there's still basically labor shortages. It's very hard for people to find workers. And that's what you kind of saw here at the donut factory,' he said. Goolsbee oversees the Seventh Federal Reserve District, which includes Iowa, much of Illinois, Indiana, Michigan and Wisconsin. Some of his colleagues, including Jeffrey Schmid, of the Kansas City Fed; Alberto Musalem, of the St. Louis Fed; and Beth Hammack, of the Cleveland Fed, are sounding similarly cautious tones about the economy. All three current Federal Open Market Committee voters have said in recent days that it's either too early to decide or that keeping rates steady for now would be their preference. The futures market predicts the Fed will cut by 0.25% at its next meeting. But some, including Treasury Secretary Scott Bessent, think the Fed should make a more dramatic cut, by up to a half-point. Musalem said Wednesday on CNBC that a cut that large would be 'unsupported by the current state of the economy.' Amid unrelenting attacks from Trump and his administration against the FOMC and Chair Jerome Powell, Goolsbee, who was an economic adviser to President Barack Obama, said economic indicators should drive monetary policymaking, not politics. 'The FOMC and my own thinking are that what should drive interest rate decisions should be the economic conditions and the economic outlook,' he said. 'I invite anybody to look at the minutes or read the transcripts of the FOMC — the people on that body take extremely seriously that it is the economy that should drive the decisions. And that is what drives the decisions.' 'This is a committee made up of people from a lot of different perspectives. And as I say, they keep track of, word for word, what everyone says at the meetings. And you can look at it yourself.'
