The Federal Reserve Open Market Committee, as expected, on Wednesday dropped its benchmark interest rate by a quarter point to the 1 3/4%-to-2% range.
In its statement, the FOMC said, "Information received since the Federal Open Market Committee met in July indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports have weakened."
The was dissent on the committee, whose decision was not unanimous. James Bullard, who preferred at this meeting to lower the target range for the federal funds rate to 1-1/2% to 1-3/4%; and Esther L. George and Eric S. Rosengren, who preferred to maintain the target range at 2% to 2-1/4%, dissented.
Commenting on the decision, Mike Fratantoni, SVP and chief economist at the Mortgage Bankers Association, said, “Although the financial markets fully anticipated today’s Federal Reserve decision to lower their target for the Fed Funds rate, the level of uncertainty in respect to the global and domestic economy and future monetary policy has been quite high. This is why there’s been a wild swing in mortgage rates over the past month. Today’s news does little to reduce uncertainty. The trade war with China, and now conflict in the Middle East, certainly add to the overall uneasiness. While it is not surprising that FOMC voters cannot agree on the outlook for monetary policy, as indicated by the three dissenting votes today, the disagreement itself also adds to the uncertainty. Looking ahead, we expect that the recent refinance wave from homeowners, spurred by the drop in mortgage rates in August, will tail off as the year progresses. For the purchase market, significantly lower mortgage rates compared to last year, coupled with a still strong job market, should continue to support home buyer demand.”
Lawrence Yun, chief economist for the National Association of Realtors, agreed with the Fed's Bullard. “The interest rate cut is the right decision, but should have been bolder with a 50 basis point move," Yun said in a statement. "The indication of another rate cut in a few months will simply hold back some consumer and business decisions until then. It would have been better to get the economy going right away. What’s next? Inflation is tame, and consistently has been undershooting the Fed’s projections. Economic activity, both in the U.S. and abroad, is clearly slowing. Other central banks are loosening their monetary policy. Another rate cut in the U.S. by the year’s end is nearly assured. For consumers, mortgage rates may decline, or may not, since the global bond market influences the longer-term interest rates. Rising government deficit and debt levels imply some upward pressure on bond yields. However, a softening economy and slack in aggregate demand points to a downward nudge to bond yields. Various competing forces are at work. One thing is clear: mortgage rates currently are essentially at their lowest mark in modern history.”
