Is the Federal Bank moving to lower interest rates on home purchases?

 

Is the Federal Bank moving to lower interest rates on home purchases?

U.S. homebuyers are waiting for the Federal Reserve to lower interest rates, and ten experts say it will happen.

High mortgage rates make it difficult for potential homebuyers to enter the market.

Mortgage rates could fall if the Federal Reserve lowers interest rates next year.

Here are ten predictions from experts about when the Fed will make its first interest rate cut.

High mortgage rates have virtually frozen the U.S. housing market. While lower interest rates may be on the horizon, Americans may have to wait a while.

The average rate for a 30-year fixed-rate mortgage is more than 7%, up from about 3% at the beginning of 2022. This has deterred potential first-time home buyers from taking risks and made current homeowners reluctant to sell their homes and buy another - They prefer to stick to the very low rates they have already set.

Meanwhile, the lack of people selling their homes has contributed to a shortage of housing inventory and helped support prices, which may not come down anytime soon. While these factors deter potential buyers, interest rates may only stay high for a while.

The Federal Reserve has raised interest rates to combat inflation, but many experts expect it will move more cautiously — and possibly lower — over the next year in response to slowing inflation and the possibility of a weaker U.S. economy.

While lower interest rates will not directly cause mortgage rates to fall, the two tend to move in the same direction. For this reason, potential homebuyers would be wise to watch when the Fed's first interest rate cut might come — even though interest rates are unlikely to return to where they were a few years ago.

Business Insider has compiled ten expert predictions for when interest rates will be first cut. The forecasts are listed in chronological order — experts who expect interest rates to be cut the soonest are listed first.

February

In August, Preston Caldwell, a senior U.S. economist at Morningstar, said that he expected the Fed to start cutting interest rates in February.

"The Fed will focus on monetary easing as inflation declines to its 2% target and the need to support economic growth becomes a major concern," he wrote.

By March next year

Earlier this month, a team led by UBS economist Arnd Kaptein and strategist Bhanu Baweja wrote in a research note that they expect the Fed to cut interest rates starting next March.

"A key feature of the UBS forecast is the very pronounced federal easing cycle expected to unfold from March 2024 onwards," they wrote.

They added that the Fed's cuts would "respond to the expected U.S. recession in the second to third quarter of 2024 and the ongoing slowdown in headline and core inflation."

Not before April

In August, David Einhorn, founder and president of hedge fund Greenlight Capital, wrote that he expected the Fed to cut interest rates next year.

We continue to believe the market is over-expecting interest rate cuts, and we have extended this view to March 2024," he said.

maybe

Following the release of the August inflation report, KPMG US chief economist Diane Swonk wrote in a note that the Fed may still need to finish raising interest rates.

"The Fed needs to see quarters, not months, of cooler inflation to cut rates. We're not even close to that," she wrote. "Our expectations for the first rate cut in May 2024 remain valid."

Separately, according to CME Group's FedWatch tool, which calculates the probabilities of different moves for federal funds rates based on what traders do in derivatives markets tied to those rates, there is a 19% chance of a rate cut in March. In May, the odds jumped to 82.3%.

Between April and June

In a September Reuters poll of 97 economists, the consensus prediction was that the Fed would only cut interest rates in the April-June period.

"Tight labor and housing markets represent an upside risk to inflation," Andrew Hollenhorst, chief US economist at Citi, told Reuters. "In the absence of a recession, policymakers will likely keep interest rates steady through 2024."

Second quarter of 2024

In a podcast episode of Goldman Sachs in September, David Merkel, chief US economist at Goldman Sachs, said he expected the Fed's first interest rate cut to be in the second quarter of 2024.

Regarding inflation, he said, "So the best guess is that we will go back to 2%." "But we are by no means quite there or even close enough. It is too early to say we have overcome this problem."

Between May and the end of 2024

In September, economists from some of North America's largest banks said they expected the Fed to hold off on cutting interest rates until sometime between May and the end of next year.

"Given what has been proven and expected

Simona Mokota, chief economist at State Street Global Advisors, said, "Inflation progresses; a majority of panelists believe the Fed's tightening cycle has come to an end."

Second half of 2024

In a September note, Vanguard's global economics and markets team wrote that it expects the Fed to begin cutting interest rates in the second half of 2024.

"We believe the catalyst for easing will be either recession or lower inflation while economic activity remains strong ('soft landing')," the team said.

Later next year

Jeff Morton, portfolio manager at DWS Group, said in September that interest rate cuts were likely to occur next year.

"We have postponed our cut expectations until later next year, at a rate of one cut per quarter, unless there is a severe recession," he said.