The Federal Reserve voted to keep the federal funds rate steady, ending its three-meeting streak of rate cuts and showing central bankers cautious confidence in the economy. “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully review incoming data, the evolving outlook and the balance of risks,” the official statement said. In other words, they are acknowledging the uncertainty, but noting that the current situation is safe enough for a wait-and-see approach.
Mortgage interest rates have moved lower since late last summer into the new year, often ahead of Fed cuts. The central bankers latest announcement is unlikely to move mortgage rates, but more information on potential purchases of mortgage-backed securities.
Why the Fed Pressed the Stop
Interest rates, mortgage or otherwise, are technically not the primary concern of the Federal Reserve. Federal funds ratewhich is actually the Fed’s fixed short-term borrowing rate, is central bankers’ primary means of influencing economic activity.
The Federal Reserve has a dual mandate to support both maximum employment and price stability – essentially, keeping the labor market solid and inflation under control. The Fed uses the funds rate to raise or lower borrowing costs to keep these goals in balance.
Central bankers taking a beat will allow them to see how the 2025 cuts play out. Recent data shows An economy that is semi-recovering: Although prices continue to rise, inflation is broadly in line with expectations, and while hiring has been slightly weaker, unemployment may moderate.
Gay Corverton, chief economist for the Miami Association of Realtors, commented via email. “Based on current data, the Fed still appears on track to cut the federal funds rate at least once this year.” But for now, there is no sense of urgency.
What can move mortgage rates?
So if the Federal Reserve is taking its time, where did all these recent headlines about mortgage interest rates being the lowest in three years come from? Well, there is only one part of the feed The economic ecosystem that drives mortgage rates. Combinations of various factors gel in these ways that move rates up or down over long-term cycles.
Every now and then, however, we find a sudden change that can be traced back to a single source. That’s what happened in early January, when President Trump called for $200 billion in mortgage-backed securities (MBS) purchases. Even with scant details, this potential cash infusion lowered the average 30-year mortgage rate to its lowest level since September 2022.
MBS are bundles of mortgages that are similar Bonds. After the home loan closes, the mortgage lender typically resells it to housing finance agencies Fannie Mae, Freddie Mac or Ginny Mae. These institutions bundle similar loans together, creating mortgage-backed securities. Investors buy MBS and receive periodic payments.
MBS are key to providing liquidity to mortgage lenders: selling the loans allows lenders to replenish their cash and make loans more quickly than if they held mortgages and waited for homeowners to pay them off. That’s why news of potential MBS purchases sent mortgage rates lower. When there is a guaranteed buyer, mortgage lenders can offer lower rates.
Unfortunately for those hoping for lower mortgage rates, the post-announcement decision is already over. “Without consistent, predictable buying, it’s hard to see that having a lasting impact on rates,” Realtor.com senior economist Jack Kremmel commented via email.
Mortgage rates are still relatively low. Freddie Mac’s weekly rate survey reported an average of less than 6.3 percent since early October. According to rates provided to NerdWallet by Zillow this week, the average rate on a 30-year fixed-rate mortgage was 5.99% APR.
That said, if we were to get additional information about this MBS purchase, let alone an actual purchase, we could see another drop in mortgage rates. While it may be too young for homebuyers to do much, homeowners are anxiously awaiting it. Refinance opportunity Could see a window of opportunity.
