The Line: The Fed Cuts 0.25%, But Still Finds a Way to Upset Us

This week, we digest the Fed’s rate cut and have the latest on mortgage rates. Hint: it’s more treat than trick, so welcome to the Halloween edition of the Line.

The Fed Cuts 0.25%, But Still Finds a Way to Upset Us

As expected, the Federal Reserve reduced short-term rates by 25 basis points at their meeting this week. This marked the second straight meeting that ended with a rate cut. Not sure if you noticed, but this year is looking a bit like last year at theFed. In 2024, they cut rates at their September 19, November 8, and December 19 meetings. This year, they cut rates on September 18, October 30, and are expected to cut again on December 10. But I digress.

There were two members who voted against the 0.25% cut, one who wanted no change, and one who wanted a bigger cut. The Fed also announced they would no longer be reducing their balance sheet, a process known as quantitative tightening. I won’t bore you with all the details, but quantitative tightening is designed to bring rates up and slow the economy down. You can see why in thecurrent economic climate this is the opposite of what we need, so ending it is a good thing.

So, why am I upset with the Fed when it seems like I should just be happy? Thepost-meeting news conference. The more Fed governors speak, the more likely they are to spoil the party. Chairman Powell said the following: “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”

You may remember that after they announced their September rate cut, the Fed indicated there were two more cuts coming before the end of 2025. Powell’s statement doesn’t necessarily change that plan—markets had the odds of a December rate cut at over 70% yesterday afternoon—but it does cast a bit of doubt we’d rather not worry about.

I’ve spoken a lot in this column about how mortgage rates are not directly related to what the Fed does, but this action will impact other rates. Here’s an article that goes into that in more detail.

To sum up, the Fed gave us what we wanted but it came with a warning that a December cut is not a certainty. Guess I’ll give them a bit of a pass, as due to thegovernment shutdown they are tackling serious problems with hardly any hard economic data. By the way, did you know the government shutdown is expected to cost the U,S economy up to $14 billion, according to the Congressional Budget Office? What a shame.

Mortgage Rates Fall for the Fourth Straight Week

The average 30-year mortgage rate fell to 6.17% this week, its lowest level since the week ending October 3, 2024. This is great news that reminds us yet again that mortgage rates can fall for several weeks in a row even before the Fed does anything to short-term rates.