7 months ago
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The Fed is expected to cut interest rates this week, a decision likely to be the start of a gradual decline in how much consumers pay for cars, houses and everything they buy on credit.
Just don’t expect sudden changes.
Lenders and markets have anticipated a rate cut for weeks, so “this has been priced into the market,” said Jerry Nickelsburg, faculty director of the UCLA Anderson economic forecast.
As a result, “We shouldn’t expect this upcoming Fed rate cut or lower mortgage rates to totally reshape California’s housing market, or its overall economy,” said Jacob Channel, senior economist at LendingTree, which tracks interest rates.
The Federal Reserve is expected to cut its target interest rate when it meets Tuesday and Wednesday. A cut would reverse a trend of higher rates that began in early 2022.
The cut, likely to be announced Wednesday afternoon, is seen as between one-fourth and one-half of 1 percentage point.
The Fed began increasing its target rate as the pace of inflation began to spike in early 2022. Its aim was to slow the price increases, which hit a 40 year annual high of 9.1% that summer.
Higher rates usually help slow price increases, since demand cools and sellers of goods and services are less inclined to raise prices. The strategy has largely worked, as the rate of inflation for the 12 months ending in August was 2.5%, according to the federal Bureau of Labor Statistics.
The Fed’s current target rate is between 5.25% and 5.5%. That is the rate banks charge one another for overnight lending. The banks and other lenders then loan funds to consumers at higher rates in order to make a profit.
Is this the first of many interest rate cuts?
Many economists see even further rate cuts in the months ahead, thanks to the slowing pace of inflation and a desire to boost an economy that appears to be slowing down..
Declining oil prices and slower wage increases make the future inflation outlook “cautiously optimistic,” said Sung Won Sohn, president of SS Economics, a Los Angeles-based economic consulting firm.
As a result, he said, the Fed is “likely to consider further policy adjustments to maintain stability in the face of evolving economic conditions.”
Will this be a good time to buy a home?
There’s no easy answer.
“Borrowers are likely going to meet rate cuts with open arms, but borrowing isn’t about to become so inexpensive that people feel obligated to totally change their financial strategies,” said Channel.
“Don’t expect getting a mortgage and buying a house to suddenly become dramatically easier in the immediate future,” he said.
