Those looking to buy or sell a home are likely paying close attention to mortgage rates. They might be curious about what the future holds in this regard.
One factor that can affect mortgage rates is the Federal Funds Rate. This rate influences the cost of borrowing between banks, and although the Federal Reserve (Fed) does not directly control it, it can adjust the Federal Funds Rate.
Because of the relationship between these two rates, people are watching closely to see when the Federal Reserve will lower the Federal Funds Rate. If rates are lowered, it would put downward pressure on mortgage rates. The Federal Reserve is scheduled to hold a meeting next week, and the three most important indicators they will consider are:
Inflation Rate
Number of Jobs Added to the Economy
Unemployment Rate
Here is the latest data on these three indicators:
Inflation Rate Over the past 1-2 years, you have likely heard a lot about inflation and felt it when shopping. High inflation means prices are rising rapidly. The Federal Reserve aims to bring the inflation rate back to 2%. Although it is still above that level, it is moving in the right direction.
Number of Jobs Added to the Economy The Federal Reserve monitors the number of new jobs added each month. They want to see a sustained slowdown in job growth before taking action on the Federal Funds Rate. Fewer jobs being added suggests that the economy is still strong but cooling slightly. This is currently happening. According to Inman.com: “...The Bureau of Labor Statistics reported that employers added fewer jobs than expected in April and May, and private sector employment was weak in June.” While employers are still adding jobs, they are adding fewer than before. This is a sign that the overheated economy is cooling down, which is a positive trend for the Federal Reserve.
Unemployment Rate The unemployment rate is the percentage of people who want to work but cannot find a job. Therefore, a low unemployment rate means many Americans are employed. This is good for many people, but it can also raise inflation since more people working means more consumption. Currently, the unemployment rate is low but has been gradually rising over the past few months. A sustained increase in the unemployment rate is what the Federal Reserve needs before considering lowering the Federal Funds Rate. Higher unemployment helps reduce consumption and thus curbs inflation.
OutlookMortgage rates are expected to remain volatile, but there are signs that the economy is moving in the direction the Federal Reserve wants. However, the likelihood of the Federal Reserve lowering the Federal Funds Rate in the upcoming meeting is low. Federal Reserve Chair Jerome Powell recently announced that he will not begin easing policy until he is more confident that inflation will consistently return to 2%.
Essentially, we are seeing initial signs, but the Federal Reserve needs more data and time to be sure that this trend is sustainable. If this trend continues, according to the CME FedWatch Tool, experts predict a 96.1% chance that the Federal Reserve will lower the Federal Funds Rate in the September meeting.
Although the Federal Reserve does not set mortgage rates directly, mortgage rates will react to a decrease in the Federal Funds Rate.
Changes in economic reports, global events, and other factors could alter the timing of Federal Reserve actions. Therefore, trying to time the market is generally not a good idea.
ConclusionRecent economic data may offer hope for lower mortgage rates. For the latest trends and their implications, consult a reliable local real estate agent.
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