'Tis the season of giving unless you're Jerome Powell.... As expected, the Fed cut the Fed Funds Rate by a 0.25% BUT thanks to a very Grinch-esque speech from Powell, mortgage rates went higher (more on why below).

The good news is that nearly everything else went our way and Powell just might be eating his words in the near future.

The average rate on a 30-year fixed rate conventional loan rose again to 6.82% which is HIGHER than the 6.675% we saw in December 23,2024!

The Fed Rate Cut

We all knew the Fed was going to cut the Fed Funds Rate by 0.25%, but what we didn't know (and what I've been cautioning against) is what Powell and the gang were going to say about future rate cuts.

Long story short. The Fed isn't motivated to make future rate cuts for 2 reasons: 1) the labor market isn't cooling fast enough and 2) inflation has been moving sideways the last several months instead of down towards the 2% target.

That  has the Fed predicting just 2 rate cuts will come to fruition in 2025, instead of the 3 rate cuts it predicted in November. Fewer future rate cuts = higher mortgage rates today.

Of course - rate cutting predictions are more of an art than a science.  The Fed might end up cutting rates 4 times in 2025 for all we know, but their overly cautious tone is what pushed rates higher last week.

The stock market felt the shockwaves from the Fed's conference too. Stocks plummeted to the worst day they've had in a long time as higher rates are bad for everyone. 

Less Than 48 Hours Later: Inflation Data Beats Expectations

Less than 2 days after Powell ranted about persistent inflation, the Fed got what they were looking for. The PCE Index (the Fed's favorite inflation measure) came in lower than expected (2.4% inflation rate on an annual basis vs. 2.5% expected). It's not 2% but at least it's trending down.

It was a big win for the market since inflation data hasn't beaten expectations in the last few months. With retail sales continuing to post better than expected numbers, the market has a perpetual fear that inflation will come back - which as we all know is BAD for rates. This new inflation data is overwhelmingly positive in the face of that retail sales data.

It was the silver lining in an otherwise horrendous week for mortgage rates because if this trend continues into January and February, we'll likely get more positive commentary from the Fed on rate cuts that will push mortgage rates lower.

When should we expect the next cut?
 
Not for A WHILE. Current predictions show that the majority of analysts believe we won't see another cut until June. Of course, this is all extremely speculative at the moment. A few bad employment reports or good inflation reports can turn everything on its head.

The housing market is still strong as proven again in last week's reporting and next week's newsletter (my last of the year) will be dedicated to all the recent reporting on  the housing market PLUS I'll answer the top 3 questions I received from homebuyers and newsletter participants in 2024. So if you have a question you want answered, now is the time to ask it!