The Federal Reserve recently cut interest rates by 50 basis points, a larger amount than some observers expected. Asked whether the larger-than-usual cut was a kind of "catch-up" action to substantial downward revisions to hiring over the last year and a soft July jobs report, Fed Chair Powell said that the cut was "timely" and that should be viewed "as a sign of our commitment not to get behind." With hiring slowing, job openings narrowing and the unemployment rate rising over some months, it's fair to say that the Fed didn't wish to risk further weakening in labor conditions, a condition Mr. Powell previously described it as "unwanted".
With mortgage rates flattening out after a string of declines, mortgage seekers may be waiting for better deals as well. As reported by the Mortgage Bankers Association, requests for mortgage credit declined by 1.3% in the week of September 27, the first softening since the middle of August. Applications for funds to purchase homes are still positive, posting a 0.7% increase last week, a sixth consecutive increase. There were fewer homeowners looking for new mortgages to replace old ones, as refinancing applications slipped by 2.9%. Refinancing relies on falling rates to spur it along, and when rates plateau as they have, the pool of folks who can profitably refinance at that given level of rates begins to dwindle as time passes.
Expanding trouble in the Middle East is an emergent concern, as is the ongoing war between Russia and Ukraine. Oil prices have been firming up again of late, which could have lagged effects on inflation, and the generally fair economic news and labor-market strength may see the Fed consider only quarter-point moves later this fall, rather than half-point ones at least some investors were planning on. A week ago, futures markets showed basically 50-50 odds that November would bring a 50-basis point cut. Before the September jobs report, that was down to about a 33% chance: after it, just about 11%. If September's strong jobs report is backed up by another for October (due out just before the November 6-7 Fed meeting) it may be that no cut in rates at all will come.
Adding complexity to the forward-looking equation for part of the week was the short-lived longshoreman's strike at East Coast and gulf ports (working agreement in place), and of course, the financial impacts and human costs from Hurricane Helene are only starting to be understood.
At least for the moment, the yields and bond prices that underlie mortgage rates continue to firm up, and this suggests that mortgage rates will be ticking a little higher yet in the coming days. Still, they don't appear likely to go very far, but there's a good chance of a 10 to 14 basis point increase in the average offered rate for a conforming 30-year fixed-rate mortgage as reported by Freddie Mac Thursday.
