Fed Ends Year with Quarter Point Rate Cut

What happened:

In an expected move, the Federal Reserve announced a second consecutive .25%, or 25 bps, cut to the federal funds rate after the December Meeting of the Federal Open Market Committee (FOMC). The federal funds rate will lower to a range between 4.25-4.5%, the level it had been at last during December of 2022.

"With today's action, we have lowered our policy rate by a full percentage point from its peak and our policy stance is now significantly less restrictive," Chair Jerome Powell said at his news conference following the meeting. "We can therefore be more cautious as we consider further adjustments to our policy rate."

The Fed indicated a probable course ahead in 2025 of two rate cuts, which is lower than what had been indicated for next year following previous meetings.

What it means:

The Fed's action does line up with what most economists were expecting. Chairman Powell suggested that the second consecutive 25 bps cut came with more concern about the direction of the economy than the last one. "Today was a closer call but we decided it was the right call," he noted.

Looking ahead, Powell indicated that the committee was less inclined to continue the pace of rate cuts that finished out 2024 with three consecutive cuts. "We moved pretty quickly to get to here and I think going forward obviously we're moving slower," Powell said.

How this affects homeownership:

Following the last FOMC meeting, mortgage rates rose even though the Fed cut rates. That served as a reminder that the Fed's rate is not the same as your mortgage rate and lenders look at all aspects of the economy when setting rates. Chairman Powell's tone suggests that the fight against inflation is set to continue throughout 2025. The optimistic take would be that, with the Fed's move, mortgage rates could start dropping now or in the near future.

It's impossible to say when mortgage rates come down, but when they do, find out how to take advantage of a mortgage rate drop and be prepared to quickly take advantage of lowering rates.

Rate helps people with Life's Biggest Purchase (TM). With Offices in 50 states, we assist customers with new home purchases and refinances the way they choose - face-to-face, over the phone, or online – and have funded over $75 billion of loans last year.

Gary Marino is the VP of Mortgage Lending NMLS# 41910 at Rate. Rate NMLS# 2611 139 Chestnut St. Suite 1, Nutley NJ, 07110.(973) 953-8555 www.rate.com/garymarino

Registered Mortgage Broker - NYS Department of Financial Services. Licensed by the NJ Dept of Banking and Insurance