Mortgage rates eased again this week as the Fed Chair made clear that the ‘time has come’ for rate cuts. In a gift to investors and home shoppers alike, the Fed chair used his annual Jackson Hole symposium speech to reiterate that central bankers’ confidence was growing that the time for rate cuts had finally arrived.
Yields and mortgage rates depend on expected economic growth and Fed expectations. Economic growth is slowing and with lower upside risk to inflation, Chair Powell reiterated the fact that concerns had shifted to preventing any further cooling of the labor market.
However, uncertainty remains about where the Fed funds rate will settle. Despite a slowdown from a torrid pace of activity, economic growth remains strong, fueled by household consumption and fiscal policy tailwinds. Last month, retail sales and home sales increased more than expected. Layoffs remain low and labor supply could also eventually hit a wall to prevent further wage disinflation. In short, monetary policy may be restrictive but perhaps not so much to justify a large decline in the Fed funds rate. Markets continue to anticipate three quarter point rate cuts before year’s end and the Fed funds rate settling in the 3.25-3.50% range in 2025.
The PCE inflation data report later this week and next week’s jobs report will likely cause investors to reassess their forecasts for economic growth and the path of Fed policy. While inflation is expected to keep moderating, any deviation from the expected path or a larger than anticipated loosening of the labor market could trigger more mortgage rate volatility.