The Federal Reserve could be ready to cut rates for the first time in more than four years in its upcoming September FOMC meeting.
According to a report in Reuters, the interest rate for the most popular U.S. home loan plunged last week to its lowest level in 15 months after the Federal Reserve signaled it could start cutting its policy rate in September. A downshift in the job market bolstered financial market bets that the reductions in borrowing costs could be significant.
The average contract rate on a 30-year fixed-rate mortgage dropped 27 basis points in the week ended Aug. 2, to 6.55%, the Mortgage Bankers Association said Wednesday, the lowest rate since May 2023 and the sharpest drop in two years.
According to a report from the California Association of Realtors (CAR), the economy will likely slow down further in the coming months, but a recession is not warranted.
The labor market also slowed more than expected in July and triggered a recession, said the CAR report.
According to the latest US Department of Labor report, nonfarm payrolls increased just 114k jobs last month, a sharp decline from the downwardly revised gain of 179k recorded in June and well below the consensus expectations of 185k gain.
Most of the job growth was in health care (+55k), leisure and hospitality (23k), and the government (+17k). Other industries continued to exhibit signs of cooling, with white-collar jobs like information, financial services and professional and business services all fell in July. The unemployment rate rose to 4.3% and reached its highest level since October 2021. Wage growth came lower than expected, with average hourly earnings rising 0.2% month-over-month and 3.6% year-over-year. The slowdown in jobs growth renewed recession fears and triggered the worst sell-off of the year on Wall Street.
Meanwhile, said the CAR report, the Federal Reserve left the fed funds rate unchanged in its July FOMC meeting but hinted that a rate cut is getting close. Fed Chair Jerome Powell told reporters recently that a rate cut could be on the table in the next meeting, as some further progress on inflation has been observed, said the report.
The CAR report posited that with recession fears sparking market sell-offs around the world in the past two days, the Fed could make an emergency rate cut before the next scheduled meeting.
Mortgage rates also plummeted following last week’s jobs report amid speculations that the Fed could cut rates before the next FOMC meeting as recession fears surge.
According to Mortgage News Daily, the 10-year Treasury yield fell nearly 40 basis points from a week ago and reached its lowest level since June 2023. T
The average 30-year fixed rate mortgage declined to 6.34% as of August 5, the lowest level in almost 16 months.Rates could stabilize and may even inch back up slightly in the near term, however, as fresh new data suggests that the U.S. service sector was growing at a faster-than-expected pace in July, said the CAR report.
