What’s Happened Since the Fed's Interest Decision?

Last week, the Federal Reserve announced it would hold rates steady at 5.25% - 5.5%, a two-decade high. This rate has remained in place since July 2023. The Federal funds rate is a macroeconomic indicator that affects the rate at which banks borrow from each other. By adjusting the rate, the Fed influences borrowing costs, causing banks to change their rates to consumers.

‍The Fed has hinted that rate cuts could come soon. In a news conference after the meeting, Fed Chair Jerome Powell said, “a reduction in the policy rate could be on the table as soon as the next meeting in September. We’re getting closer to the point at which it’ll be appropriate to reduce our policy rate, but we’re not quite at that point.” The shift is significant as it suggests inflation is getting closer to the level where lowering rates is possible, particularly if the labor market continues to cool.

Since the Fed interest rate decision, the U.S. The Stock Market has seen significant volatility. Equities experienced some of the largest declines and growth since the Covid-19 pandemic. However, the S&P 500 remains down 3.5% today from the announcement - with a 3% decline on Monday and rebounding throughout the week. Within the volatility, investors continue to search for safer alternatives, such as treasuries.

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As more investors deploy capital into treasuries, yields decline. For instance, over the past week, 10-year yields fluctuated by nearly 0.3% as investors sought safety from economic uncertainty and market volatility.

Considering current economic conditions, the Fed is likely to drop rates at least once during its September 18th meeting. Investors also widely expect them to cut rates even a second or third time before the end of the year. In turn, many housing market experts expect mortgage rates to decrease. This shift could improve housing affordability as the difference between a 6.5% rate and an 8% rate can mean $350 a month. If mortgage rates decline, we could see an upward tick in buyer demand as many potential buyers are sitting on the sidelines waiting for lower rates. 

Plotify's Takeaway:

- The Federal Reserve maintained the federal funds rate at 5.25 - 5.50% for the fourth consecutive time.

- The Federal Reserve hinted at rate cuts happening during the September 18th meeting if inflation decreases continue to be reflected in data.

- Mortgage rates may see some cooling throughout the remainder of 2024 if the Fed follows through with implied rate cuts