Interest rates have been cut for the first time in a decade, as the Fed announced Wednesday that rates will drop by a quarter of a point.
According to reports from The Washington Post, interest rates will fall to 2.25%, with the Fed saying that the central bank is ready to “cut more to stimulate the economy, if necessary.”
“Uncertainties about this [economic] outlook remain,” the Fed wrote, adding, “As the [Fed] contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”
Realtor.com’s Chief Economist Danielle Hale said economic growth has stalled and inflation has remained under the Fed’s 2% target since the last rate cut.
“Although the labor market remains strong, with healthy job growth and the unemployment rate near long-term lows, the Fed's concerns about our economic outlook and the long lag time between lowering rates and seeing effects in the real economy were key drivers of the decision,” Hale said.
Hale said it is “unlikely” that Wednesday’s rate cut will lead to additional drop in mortgage rates, because interest rate dropping was expected. Hale, though, added a factor that may put pressure on rates is an earlier end to the fed’s balance sheet ending, which is now planned for August—two months earlier than expected.
Tian Liu, Chief Economist at Genworth Mortgage Insurance, said while the cut was anticipated by many in the industry, it is “not a major deviation from what the market was anticipating.”
Liu added that the housing market is likely to see a boost moving forward, as the moderate drop will likely stimulate economic growth, and possibly bring buyers back to the market.
“I think a lot of people were talking about waiting out for the Fed rate cut, and I think once they see that the Fed rate cut is not going to change mortgage rates significantly, they will likely come off the sidelines and start buying again,” Liu said. “I think that’s going to be positive for the housing market and also for the mortgage industry.”
The mortgage industry has had a successful Q2 2019, Liu said, noting the industry has brought in more than $560 billion in origination.
Although a rate cut was expected, the Fed was facing pressure, especially from President Donald Trump, to drop rates. Trump tweeted in July that he believes now is the best time to cut interest rates.
“Very inexpensive, in fact productive, to move now,” the President tweeted. “The Fed raised & tightened far too much & too fast.”
The economy exceeded expectations in Q2 2019, although slowing, according to the latest GDP report, which reported that Q2 2019 saw the GDP increase at an annual rate of 2.1%, compared to Q1 2019’s rate of 3.1%.
Liu said the latest GDP report shows a moderate slowdown, and something the Fed hopes to address in a “gentle way.” While noting the economic slowdown is not as dramatic as some anticipated, the Fed would like to see a faster level of growth.
Although this is the first cut in a decade, Liu said there is a good chance the wait won’t be as long for the next, as there is a “very high probability” of a second rate cut later in 2019.
Any additional rate cuts will depend on how the global economy, trade tensions, and the financial market reacts to Wednesday’s cuts, Liu said.