All signs are pointing to another Fed rate cut next week. The Federal Open Market Committee (FOMC) will be meeting October 29-30. Even though the Federal Reserve has cut interest rates twice already this year in policy-easing measures, they are likely to approve another quarter-point reduction. This will take the funds rate down to 1.5%-1.75%.

What is the Fed Funds Rate?

The Fed funds rate applies specifically to what banks charge one another for overnight lending. However, it highly influences most forms of consumer debt including mortgage loans. We’ve seen some incredibly low interest rates on home loans in 2019, but Fed rate cuts don’t necessarily mean lower interest rates on consumer loans.

Economists from Goldman Sachs agree that a Fed rate cut will most likely happen, but they also see two additional moves taking place that would more or less end the current easing cycle. Both strategies involve possible adjustment to the language released with the announcement of this move, which would be the third such policy-easing this year.

Completion of the Midcycle Adjustment

FOMC Chairman Jerome Powell hinted at the central bank’s “midcycle adjustment” back in July. Goldman economists expect this upcoming rate cut to represent the fulfillment of that promise. Any statement released by the Fed will probably reflect this message. Fed officials have backed each cut by assuring everyone that the U.S. economy was still on solid ground. The rate cuts were largely made in response to fears of global economic slowing, U.S./China tariffs and increasing inflation. In other words, by relaxing financial conditions, the Fed is hoping to strike the right balance that will help maintain a healthy overall economy.

Is This the Final Rate Cut?

In addition to indicating that the rate-cutting cycle is complete for the foreseeable future, Goldman Sachs also anticipates another tweak in the statement released with the next Fed rate cut. It would not be surprising to see them remove a specific piece of language that says the Fed “will act as appropriate to sustain the expansion.” This exact phrase was found in the June statement that preceded the July rate cut.

“We expect the ‘act as appropriate’ sentence to be replaced with a reference to the easing actions already delivered,” says Goldman Sachs economist, Spencer Hill, “coupled with the following less committal guidance: ‘will act as needed to promote its objectives.’”

This language speaks to the adjustments being completed so that market participants aren’t expecting more cuts any time soon. Yet, it leaves the door open just enough in case the economic outlook deteriorates.

However, the Federal Reserve presents its next ease of policy will be seen next week. Until then, it’s safe to say that most economic experts agree that another Fed rate cut is coming and it will likely be the last adjustment for quite awhile.

Mortgage and Consumer Credit Impact

Any rate cut will surely have some effect on consumer markets and I will be keeping a close eye on mortgage rates. Will this move stimulate the real estate market or will homeowners continue to hold onto their properties, instead opting to refinance their home loans under great interest rates? Only time will tell.

For answers to all your mortgage questions or to get started with a new home loan or refinance, call Transparent Mortgage today at (619) 701-3906.

Beau Hodson

Beau Hodson

About the Author Since 2003, Beau has been a mortgage professional and is a leading mortgage broker and lender in San Diego. As Founder and Senior Mortgage Advisor at Transparent Mortgage, he is truly committed to serving the needs of his clients and raising industry standards for integrity and transparency.