Fed Signals Possible Rate Cut Next Week: Impact on Mortgage Rates from Previous Moves

The Fed May Cut Interest Rates Next Week: What Happened to Mortgage Rates Last Two Times

Anticipation is rising for a Federal Reserve interest rate cut expected next week. Market data currently show nearly a 90% chance of a rate cut at the December Fed meeting.

Rising unemployment and job losses are driving expectations for the Fed to stimulate the economy. This has homebuyers and borrowers hoping for relief after mortgage rates hit multi-decade highs.

Mortgage Rate Behavior After Prior Fed Cuts

The relationship between Fed rate cuts and mortgage rates is not straightforward. For example, before the Fed cut 50 basis points in September last year, mortgage rates had already fallen to a two-year low.

Similarly, in September this year, before a 25 basis point cut, the average 30-year mortgage rate dropped to 6.13%, a three-year low, on the morning of the Fed announcement. Rates then ticked higher in the weeks following but fell again to a similar low before the next 25 basis point cut in October.

This pattern suggests mortgage rates often decline in anticipation of Fed cuts rather than reacting immediately afterward.

What Should Borrowers Do Now?

Buyers should expect limited immediate changes in rates right after the Fed’s next cut. However, lenders often lower mortgage rates ahead of official Fed actions, creating temporary windows of opportunity.

Monitoring current mortgage offers closely and comparing lenders online can help borrowers lock in the best available rates. Preparing now will allow quicker, more informed action once the rate cut is announced.

Key Takeaways:

1. Mortgage rates usually fall ahead of Fed rate cuts, not directly after.
2. Rates may fluctuate after a cut, so timing is crucial.
3. Shopping and rate comparisons before announcements provide an advantage.

Given the complex dynamics, daily vigilance can result in significant savings through lower mortgage purchase or refinance rates. With history as a guide, favorable mortgage rates could become available even before the formal Fed decision next week.