Lowering rates, he added, would likely offer a way for the economy to return to the Fed’s 2% inflation target without further weakening the US’s jobs outlook.
What’s next for mortgage rates?
Mortgage Bankers Association (MBA) senior vice president and chief economist Mike Fratantoni welcomed Powell’s remarks, saying that a September cut would likely mark “the first in a series” and precipitate a significant reduction in the federal funds target during the coming 18 months.
The labor market’s cooldown, Frantoni said, “has given the Fed the confidence that inflation will not reaccelerate. There is certainly a risk that the unemployment rate could rise faster and further than the Fed would like, but Chair Powell indicated that they are watching and would react to such a further softening in the job market.”
While Powell’s comments appear to have given the green light to rate cuts, Fratantoni said market watchers shouldn’t expect significant movement in mortgage rates as a result – since investors had already priced in that likelihood.
Still, “the immediate reaction to the speech resulted in some reductions in longer-term Treasuries and secondary mortgage market yields,” he noted, “so mortgage rates may be somewhat lower in the near term.”
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