The Federal Reserve has reduced interest rates by a quarter point, marking its first adjustment in nine months. The decision drew mixed reactions from the markets, as mortgage rates fell to their lowest level in nearly a year. However, housing experts warn that despite the cut, potential risks in the market still remain.
The Federal Reserve reduced its benchmark interest rate by a quarter point this week bringing the range down to 4 to 4.25 percent.
The move marks the first rate change in nine months and was backed by Fed Chair Jerome Powell and a majority of the Federal Open Market Committee.
One dissenting vote called for a larger cut but Powell defended the decision as a cautious step to manage rising unemployment while inflation remains high.
Fed Cuts Rates Amid Economic Uncertainty
Mortgage rates had already fallen ahead of the decision reaching an eleven month low of 6.35 percent last week according to Freddie Mac.
Rates typically follow long term bond yields which climbed slightly after the Fed released its projections showing fewer cuts than markets expected in the years ahead. This gap between market hopes and Fed policy leaves uncertainty for borrowers.
The housing market responded quickly as homebuilder stocks rose following the announcement. Builders welcomed the move noting that lower borrowing costs will make financing new projects more affordable.
Economists however warned that mortgage rates may not decline much further. Inflation pressures and shifting bond markets could reverse recent gains and keep rates above six percent into next year.
Political tensions have also surrounded the decision as President Donald Trump continues to push publicly for lower rates. His newly appointed adviser Stephen Miran voted against the smaller cut arguing for a half point move.
The unusual political influence has raised questions about the Fed’s independence though Powell stressed the committee remains committed to its dual mandate of stable prices and maximum employment.
For homebuyers the rate cut offers some relief but not a guarantee of cheaper mortgages. Economists say affordability remains a challenge and housing costs are still out of reach for many families despite lower borrowing rates.
The path forward will depend on inflation data in the coming months and whether markets and the Fed can find common ground.
