Fed holds rates steady
On Wednesday, the Fed kept short-term interest rates steady, and said it was "unlikely" that they would begin cutting rates in March. But with "core" PCE inflation already approaching their 2% target, the risk of damaging the economy through unnecessarily high interest rates is rising. Whether rate cuts start in March or May - they're coming soon...even if the job market remains tight.
But market expects cuts
Remember: the Fed doesn't set mortgage rates, the market does. And the market is always looking ahead, trying to "guess" where inflation and interest rates will go next. Despite Powell's rhetoric, the market expects a series of rate cuts to begin in May at the latest. This, together with somewhat weaker job numbers recently, has caused the average 30-year mortgage rate to drop back to near 6.6%.
Not a 'head fake' this time
Around this time last year, pending home sales skyrocketed in response to a sharp (but ultimately brief) fall in mortgage rates. But the 8% month-over-month jump in pending sales experienced last month is much more likely to be sustainable. Why? Because the Fed will be cutting (instead of raising) rates, and the inventory of homes available for sale is beginning to rise.
