The Coming Fed Rate Cuts and the Impact on Mortgage Rates

Yesterday, the Federal Open Market Committee (FOMC) “decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent”, but the statement and projections suggested multiple rate cuts in 2024.

Following the FOMC meeting, Goldman Sachs economists wrote:

The soft PPI report on Tuesday morning combined with downward revisions to prior months implies that core PCE inflation was only 0.07% month-on-month and—as Chair Powell noted in the press conference—only 3.1% year-on-year in November. By some measures, the trend is already at or near 2%.

In light of the faster return to target, we now expect the FOMC to cut earlier and faster. We now forecast three consecutive 25bp cuts in March, May, and June to reset the policy rate from a level that the FOMC will likely soon come to see as far offside, followed by quarterly cuts to a terminal rate of 3.25-3.5% …

emphasis added

Market participants are also pricing in one 25 bp cut in March, and 2nd in May, and a 3rd in June, bringing the Fed Funds target range down to 4.50% to 4.75% by June 12, 2024. With the Ten-Year yield currently at 3.93%, the yield curve would still be inverted in June.

What does this mean for mortgage rates?