Fed Lowers Interest Rate a Quarter Point and Hints of More Cuts in 2025

WASHINGTON—The Federal Reserve’s Open Market Committee overwhelmingly approved a quarter point (25 basis points) cut in the federal funds target rate on Sept. 17 and also seems in lock-step to approve two further cuts later this year.

Fed Chairman Jerome Powell and the FOMC in its released statement cited the weakening job market as a key factor in its decision along with moderating economic activity. Economists do not expect mortgage rates to fall sharply due to the Fed’s action and instead expect some volatility going forward, especially if jobs data continues to show weakness.

All members of the FOMC voted in favor of the 25-basis-point cut with the exception of newly appointed member Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 50 basis points.

The FOMC in its statement noted that it continues to seek maximum employment and a 2% inflation rate. It stated: “In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2% objective.”

Fed Chair Jerome Powell said Wednesday’s decision reflected a desire to keep risks to the economy in check, according to CNBC. “You can think of this, in a way, as a risk management cut,” Powell said. He added that a “very different picture” of risks has emerged as the labor market has begun to cool off versus the threats on the inflation front.

Analysts pointed to the FOMC’s “dot plot” of individual FOMC member expectations which pointed to a consensus of two more rate cuts before the end of the year.

Chen Zhao, head of economics research for Redfin, said, “Mortgage rates will remain steady as bond market participants await further economic data, particularly the next jobs report on October 3.”

Mortgage Bankers Association Senior Vice President and Chief Economist Mike Fratantoni noted that the near-unanimous vote by the FOMC “suggests that members, while acknowledging that downside risks to the job market have increased, are not panicking about the state of the economy.”

He added that mortgage rates, along with longer-term Treasuries, had fallen in advance of the Fed’s rate cut and had reached their lowest point for the year the previous week.

“If mortgage rates hold at these levels, origination activity will be boosted, both for homeowners who purchased in the last three years and can realize considerable savings at these rates, and for potential homebuyers, who now have one more reason to look for a home, in addition to increasing housing supply in many markets,” he predicted.