For Fed watchers looking for signals, this one was about as clear as they come.
“The time has come for policy to adjust,” Federal Reserve Chair Jerome Powell said during a speech at an economic symposium sponsored by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming.
“The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
No, he didn’t specifically and explicitly declare that a September rate cut was coming. But given how close to the vest the normally reserved head of the central bank has been since the current monetary policy cycle began in 2022, his willingness to address a change in direction spoke volumes.
So too did his statement about “confidence,” which Powell has often said the Fed needed to pull the trigger on rate cuts. Powell hinted after the July meeting of the policy-setting Federal Open Market Committee that some of that confidence had already been achieved.
On Friday, he all but confirmed it.
“Our restrictive monetary policy helped restore balance between aggregate supply and demand, easing inflationary pressures and ensuring that inflation expectations remained well anchored,” Powell said. “Inflation is now much closer to our objective, with prices having risen 2.5% over the past 12 months.
“After a pause earlier this year, progress toward our 2% objective has resumed. My confidence has grown that inflation is on a sustainable path back to 2%.”
For a mortgage industry that has been desperate to hear favorable forward-looking statements from Powell and the Fed, the message was resounding. Mike Fratantoni, chief economist and senior vice president at the Mortgage Bankers Association, said that Powell “just rang the bell to start rate cuts.”
Fratantoni noted that Powell was swift to note that incoming data will still inform the pace of a lowering cycle, but was confident that the cut will be the first of a series that should decrease the Fed’s benchmark rate meaningfully. The mortgage market is likely to react favorably reasonably soon, he posited.
“The immediate reaction to the speech resulted in some reductions in longer-term Treasurys and secondary mortgage market yields,” Fratantoni observed, “so mortgage rates may be somewhat lower in the near term. Our forecast continues to look for mortgage rates to drift down closer to 6% over the next 12 months or so.”
The market’s prognostications now turn to the magnitude, speed and frequency of any upcoming rate decreases, as well as how (and how fast) those shifts impact mortgage rates. Earlier in the week before Powell’s speech, Melissa Cohn, regional vice president of William Raveis Mortgage, said that mortgage rates won’t fall simply due to a rate cut; the Fed’s tone will matter just as much.
“I think it’s more the message that the Fed sends to the markets, and how the markets react to what that message is, that will determine the fate of mortgage rates,” she said.
“Mortgage rates have [already] dropped, and people seem to be in good spirits. And there’s more activity of people renewing their interest in getting back into the real estate market.”
“I’ve heard from a lot of people who locked in over the course of the past 18 months, when rates were at their peak, already asking whether it’s time to refinance and what savings they could have. I think that the outlook is good, and hopefully that spills into the real estate market, and we get more buyers in the market.”
