Anybody who is in the market to buy or sell a home soon is probably following mortgage rate trends and wondering what lies ahead. One thing that can affect mortgage rates is the Federal Funds Rate which influences how much it costs banks to borrow from each other. While the Fed doesn’t control mortgage rates directly, they do control the Federal Funds Rate.
The relationship between the two is why people have been closely watching to see when the Fed might lower the Federal Funds Rate. Whenever they do, that’ll put pressure on mortgage rates to fall shortly thereafter. When the Fed meets, three of the most important metrics they’ll look at as they make their decision include the rate of inflation, how many jobs the economy is adding, and the unemployment rate. Here are some details about the three.
Rate of Inflation
Inflation has been in the news very often over the past year or two and everyone has likely experienced it whenever they go to buy just about anything. That’s because high inflation means prices have been rising fast. The Fed has stated that its goal is to get the rate of inflation back down to 2%. Right now, it still remains higher than that but is moving in the right direction.
How Many New Jobs
The Fed is also monitoring how many new jobs are created every month. They want to see job growth slow down consistently before taking any action on the Federal Funds Rate. If fewer jobs are created, it means the economy is still strong but cooling a bit which is their goal. That looks to be exactly what is transpiring now. Inman says: “. . . the Bureau of Labor Statistics reported that employers added fewer jobs in April and May than previously thought and that hiring by private companies was sluggish in June.” So, while employers are still adding jobs, they’re not adding as many as they were before. That’s an indicator the economy is slowing down after being very overheated for quite some time and is an encouraging trend for the Fed to see.
Unemployment Rate
The unemployment rate is the percentage of people who would like to work but cannot locate a job. A low rate means a lot of Americans are employed so that’s a good thing for many people. However, it can also lead to higher inflation because more people working means more people spending money which can drive up prices. These days the unemployment rate is low, but it’s been rising slowly over the past few months. While it may sound bad, a consistently rising unemployment rate is something the Fed needs to see before deciding to cut the Federal Funds Rate. That’s because a higher unemployment rate would mean reduced spending, and that would help get inflation back under control.
In the end, some recent economic data may signal that hope is nearing for mortgage rates. Count on a local real estate agent you can trust like myself to keep you up to date on the latest trends and what they mean for you.
