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5 minutes ago2 min read

This week, the Fed will hold another meeting.


 

Through this meeting, the Federal Reserve will decide how to adjust the federal funds rate. This rate refers to the cost of borrowing between banks and can also impact mortgage interest rates. If you're planning to buy or sell a home, you may be wondering how this decision will affect mortgage rates in the future.

 

The Fed's decision is based on three key economic indicators:

 

1. Inflation trends

2. Job growth

3. Unemployment rate

 

Let’s take a closer look at each of these factors:

 

1. Inflation Trends

Have you noticed prices going up every time you go shopping? This is due to inflation. The Fed aims to stabilize inflation at around 2%. While inflation is still relatively high, it has gradually decreased over the past two years and is currently in a somewhat stable state. This could be a significant factor suggesting that the Fed may lower the federal funds rate further to support economic growth and reduce borrowing costs.

 



2. Job Growth

The Fed also closely monitors the number of new jobs added to the economy each month. They are hoping for a slight slowdown in job growth. A slowdown in job growth signals that while the economy remains healthy, it may be cooling down gradually. According to the latest reports, the number of new jobs added in October was the lowest since December 2020, indicating that the labor market is cooling after a period of rapid growth.

 

3. Unemployment Rate

The unemployment rate reflects the percentage of people who want to work but cannot find a job. The current unemployment rate is 4.1%, meaning most people are employed. This indicates that the labor market remains strong. However, an extremely low unemployment rate can contribute to increased consumer spending, which could fuel inflation. The Fed is working to maintain a balance here.

 



Outlook

Overall, the economy seems to be moving in the direction the Fed desires. Because of this, experts are predicting a high likelihood that the Fed will reduce the federal funds rate by 0.25% this week. If this expectation holds, mortgage rates are likely to gradually decline. However, mortgage rates will not immediately drop but are expected to decrease gradually starting next year.

 

It’s important to note that any changes in these three factors could lead to shifts in the Fed’s decision, so it’s essential to stay informed about market conditions and interest rate fluctuations.

 

 Conclusion

While the Fed's policies do influence mortgage rates, the most significant factors affecting rates are economic data and market conditions. There is a high likelihood that rates will stabilize or decrease over the course of 2024 and 2025, bringing more certainty to a previously volatile market.

 



 

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