The Headlines say that “rates have dropped,” and that tends to elicit hope and reactions from my clients — “rates dropped, right?” Well, yes, and yes, here’s the context that matters.
The Fed lowered rates .50 bps. The Fed did not lower mortgage rates.
One of the lenders with whom I’ve worked for many years, Matt Hodges with Gray Fox Mortgage emailed the following explanation, and as I’ll be sending to my clients, the blog is where it goes. I added the links and bolding.
The Federal Reserve’s Federal Open Market Committee meets about every 6 weeks for two days. It finishes on a Wednesday with an announcement about monetary policy – that is, has the Federal Funds (FF) Rate changed or stayed the same. There will be an immediate statement and that closely mirrors the previous meeting’s minutes – they don’t re-invent the wheel! But, the language does change and policy changes. Every other meeting, including today’s also includes the “dot plots” of what the Fed’s Presidents believe will be the FF interest rates into the future.
So, today, the Fed moved 50 basis points lower. This is the first move lower since 2020. That means that prime lending rate – think HELOCs will drop .5% in rate, as other interest rates will also do, though not necessarily the same amount. Credit cards, car loans could be affected. What they did today is called easing. They are making money less expensive, as opposed to tightening, which is raising rates.
Why?
The Fed is signaling that job gains have slowed and progress has been made towards reacquiring the 2% inflation target. That’s four paragraphs summarized into two components – inflation and employment – their mandates.
The Dot Plot is arguably much harder to read. In the short terms of this year, there’s camps that predict higher, lower and the same. In both 2026 and “longer” term show rates around 3% or the equivalent of 6% on a HELOC. This is NOT mortgage rates. Those are long term rates and should be lower, but not on the same linear level that FF rate moves every 6 weeks.
And, what about interest rates?
Well, the rally leading into today was exhausted this morning. We were off 25 bps on fee. That means, if yesterday’s rate was 6.125% 0 points, then theoretically, it was 6.125% + .25% discount point. On a 100K loan, that’s $250 fee to keep the same rate. Since the release of 50 bps move, the market has rallied back to neutral to yesterday. Again, in theory that means 6.125% 0 points.
Press Conference at 2:30….we’ll see what shade of purple that J. Powell wears. It’s Mauve, as I predicted. During his comments, we have rallied even more. Will it be sustainable or a blip? Who knows!