When Will Interest Rates Go Down?

Maybe never. The Fed says inflation may be too low which just might cause mortgage rates to stop falling all together. Let’s take a look at what was said and how this will affect the economy and mortgage rates.

Federal Reserve Governor Waller Speaks Out

Fed Governor Waller released a statement. “I just think that inflation is on a lower path than we were potentially expecting. I think inflation is on the right path, as long as we don’t let it get too low.”

This statement suggests that if inflation is on the right path and they ‘don’t want it too low’ speaks to the Federal Open Market Committee (FOMC) NOT needing to drop rates much in the future.

This is good and bad for mortgage rates. Be sure and read my article on ‘what a Fed cut means for mortgage rates’.

I feel that our massive drop with mortgage rates may reach a halt sooner than later. It seems that Gov Waller is privy to information that we just don’t have yet, but regardless, the maneuvering by the Fed to control inflation appears to have worked and they don’t want to overdo it.

Implications to the economy

Federal Reserve Governor Christopher Waller’s statement suggests several key implications for the U.S. economy and monetary policy:

Positive Outlook on Inflation:

Waller indicates that inflation is decreasing more than initially expected, which is a positive sign for the economy. It means that prices should be coming down that affect the consumer. I don’t know about you, but I didn’t feel any help to my pocketbook on my last trip to Publix!

Cautious Optimism:

While Waller is optimistic about the current path of inflation, he also emphasizes the need to avoid letting inflation fall too low. What the Fed doesn’t want is deflation which is just as bad as inflation. Where inflation is an increase to prices, deflation is a reduction in prices. Deflation isn’t actually good for the economy as although we want prices to come down, we also don’t want our assets to lose value.

Monetary Policy Adjustments: Interest Rates

The statement hints at potential adjustments in monetary policy. If inflation continues to decrease, the Federal Reserve might consider easing up on the rate cuts to the fed funds rate.

This is the dagger for mortgage rates. They, mortgage rates, are forward looking and mortgage rates follow inflation. If inflation is already ‘there’ then mortgage rates will stop falling.

Ok, there is much more to it than that, but it’s safe to say that if the Fed puts the breaks on the cuts, then mortgage rates could actually tick back up a little. Remember, since the pricing of today resulted in what the mortgage markets see is going to happen, any variance from what has already been priced in could have major ramifications.

What to Expect in 2024 and 2025

It’s not looking good for mortgage rates to drop as much as we originally thought. If inflation is under control, then all the Fed has to do is play the maintain game. What may still move the markets is the election, who will be president, and all eyes will be on government spending.

Aren’t Mortgage Rates Already Decreasing?

In recent months, mortgage rates have been on a downward trend. Scratch that… they have dropped ballistically over the past 90 days. It started in July 2024 with the biggie being the huge miss in the employment numbers. The jobs report was adjusted down by 810,000 jobs basically admitting a mistake. We didn’t really create that many jobs… OOPS! Employment is a major factor in predicting inflation, so this was a shock and sent mortgage rates tumbling.

I was predicting that this pattern was likely to continue. According to data from Freddie Mac, the average 30-year fixed-rate mortgage rate has fallen to 6.05% as of September 2024. These are conventional loan averages, not VA or FHA.

If you’d like to check current mortgage rates, you can do that 24/7 on my site HERE.

The recent decline is largely attributed to the Federal Reserve’s beat up of the economy and the recent fall of inflation. Mortgage rates follow inflation. However, it’s important to remember that mortgage rates can be volatile and may fluctuate in response to changes in the economy and other factors.

While the current trend may suggest that mortgage rates will continue to decrease, these recent comments and perhaps some under-the-table political posturing, I’m not so sure anymore.

Implications for Mortgage Rate Forecast

Federal Reserve Governor Waller’s statement about inflation being on a lower path than expected will have massive implications for mortgage interest rates.

Maintaining Current Mortgage Rates:

If inflation is indeed decreasing, the Federal Reserve will be less inclined to keep cutting rates. Since mortgage markets are ‘forward looking’ they may see that the Fed is done sooner than later, and mortgage rates will stop their decline, impacting the mortgage payment calculations for homebuyers.

This could pose pretty bad for all the homebuyers that have been sitting on the fence for the last year not to mention many home sellers who have seen the housing market dry up substantially over the past 6 months.

My Outlook

Overall, Waller’s statement indicates a positive outlook for inflation control, which could translate into more of a long-term and stable housing market and mortgage rate environment. But I must admit, I may not have been exactly right about the future of rates.

I may have been wrrrr, wrrrr, I was not exactly right!

Contrary to my predictions, the question of “will mortgage rates” continue to drop remains uncertain. Remember that interest rates have fallen almost 2.5% lower in RATE from the high point of October of 2023. That’s A LOT and nothing to be shaking a stick at.

So, if you are considering buying a home or refinancing your mortgage soon, this could be a now or never time. Schedule a call with your lender and get the ball rolling on that home purchase or refinance.

If you don’t have a trusted source, schedule a call with me today: www.calendly.com/rickelmendorf or email me at rick@loanwithrick.com.