What the September FOMC meeting statement said
The Federal Reserve’s Open Market Committee (FOMC), the rate-setting body that meets roughly eight times per year, voted to cut the Federal Funds rate at its meeting today, the first cut since March 2020. The rate target was dropped by 50 basis points to a new range of 4.75 to 5.0 percent. The decision was nearly unanimous, with one dissent from Michelle Bowman, who preferred a smaller ¼ percentage point cut, highlighting that a lively discussion likely preceded this decision.
Inflation and labor market data both matter
While the labor market remains healthy, it has clearly softened from its overheated state, and Chair Powell has stated that further weakening in the labor market would be ‘unwelcome.’
At the same time, CPI inflation receded to just 2.5% in August, suggesting that PCE inflation, which is the Fed’s actual target, could move down from its 2.5% July reading. Core CPI – a measure that excludes noisy energy and food prices–trended slightly higher, notching a 0.3% gain for the month and annual inflation of 3.2%. Producer prices showed a similar pattern, with overall costs rising modestly due in part to falling energy costs and indexes excluding food and energy rising somewhat faster.
The current policy stance remains tight
Despite the upticks in core inflation, the current policy stance remains tight, and it seems that the Fed wanted to take a significant step to get back toward neutral as headline inflation continues on its glidepath and the softer labor market has balanced the risks to the dual mandate. In fact, in its September projections, the median unemployment rate projection rose across the entire forecast period, while the inflation and core inflation projections shrank in 2024 and 2025. Similarly, the policy rate projection took a big step down over the forecast period, with especially large adjustments in 2024 and 2025.The median projection of 4.4% at the end of 2024 implies a range of 4.25% – 4.5% which would mean an additional 50 basis points in Fed rate reductions spread over the two remaining FOMC meetings in 2024.
What this means for home buyers and sellers
In July 2023, the Fed raised rates for what was the last time in this tightening cycle that began in March 2022. Recent inflation and labor market data have softened somewhat faster than the Fed expected in June, giving the Fed confidence to begin normalizing policy. Although inflation is not yet all the way back to the 2% target, progress continues to be made and policy remains restrictive.
Longer-term interest rates have already begun to anticipate policy normalization, with the 10-year yield down at least a percentage point from its 4.7% calendar-year high reached in April and by slightly more from the 16-year high of 5.0% reached in October 2023. Mortgage rates, now at 6.2%, have also dropped by a full percentage point from their May 2024 calendar year peak of 7.2% and are more than a point and a half below their 7.8% October 2023 high–a 23-year high.
These lower rates have not yet induced a big shift in home buyer and seller activity as home sales still remain sluggish, but they have provided long-awaited relief to homebuyer purchasing power. Monthly mortgage costs are now down to roughly $2,100 from $2,400 in May 2024 and $2,440 in October 2023. Put another way, a buyer who budgeted to buy the typical home in 2023 now has an extra $70,000 in home purchasing power for the same monthly cost, and the boost is even greater in some markets such as those in California.
Mirroring the Realtor.com housing forecast and other projections, consumers expect further mortgage rate declines and are likely factoring this into decisions about where they will live in the year ahead. Shoppers who don’t want to wait, can benefit from the coming seasonal sweet spot for buyers that arrives in early October according to the Realtor.com Best Time to Buy report. This time of year typically offers lower home prices, fewer buyer competitors, and a still-abundant number of options. Fall homebuyers can also amplify their savings from mortgage-rate declines to date by employing the 4 research-based tips to shrink their mortgage rate that are outlined in the Realtor.com analysis of recent mortgage data.