Today brought the scheduled Fed policy announcement that we’ve been waiting for and mortgage rates plummeted as a result. So does that mean the Fed cut rates? No… The Fed kept its policy rate perfectly unchanged, as expected.
In fact, it was unlikely that the Fed would have said anything significant in the actual policy announcement itself (although they did add a single word that hinted at the prevailing rate hike cycle being over). Instead, today’s focus was on the dot plot which the Fed uses to convey its outlook for the Fed Funds Rate 4 times per year.
September’s dot plot was bad for rates, but economic data and Fed speeches since then have led investors to expect today’s dot plot to be much more friendly. That ended up being exactly what happened with September’s unfriendly changes being completely erased.
30 minutes later, Fed Chair Powell held a press conference in which he said nothing to object to the rate market’s very strong reaction. In other words, he saw the big drop in rates (as implied by bond trading levels) and didn’t have a problem with it. The market viewed this as a further endorsement of the momentum.
When all was said and done the average 30yr fixed rate for a top tier scenario was nearly 0.30% lower than yesterday afternoon–one of the biggest single day drops on record. Our rate index is now well into the high 6% range.
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