Fed Cuts Interest Rates 25 Basis Points; MBA Economist Weighs In

The Federal Reserve cut interest rates by 25 basis points Nov. 7.

“In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/2 to 4-3/4 percent,” the Federal Reserve Board’s Federal Open Market Committee said in a statement. “In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”

Mortgage Bankers Association Senior Vice President and Chief Economist Mike Fratantoni reacted to the announcement:

“Financial markets fully anticipated this rate cut, and the FOMC’s statement provides no new information regarding the likelihood of future cuts. The big impact on rates this week was clearly the election. As results rolled in, longer-term rates jumped higher. Investors expect somewhat stronger economic growth, higher inflation, and larger deficits.”  

“MBA expects that mortgage rates will remain within a fairly narrow range over the next year, with mortgage rates moving higher on signs of economic strength and more stimulative fiscal or monetary policy, or lower if it’s the opposite,” Fratantoni said. “Housing markets continue to be primed for a stronger spring homebuying season, boosted by more housing supply and slower home-price growth.”  

The full FOMC statement:

Recent indicators suggest that economic activity has continued to expand at a solid pace. Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.

In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/2 to 4-3/4 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Beth M. Hammack; Philip N. Jefferson; Adriana D. Kugler; and Christopher J. Waller.