Fed Comments Push Rates Slightly Higher
With the lack of major economic data due to the government shutdown, investors turned their attention to other areas, particularly the Fed meeting last Wednesday. While the Fed made the anticipated rate cut, comments from Chair Powell were negative for mortgage markets. The US and China reached a trade deal for a year which avoided a threatened increase in tariffs, but it caused little reaction. As a result, mortgage rates ended last week a bit higher, up from their lowest levels of the year.
Fed Cuts Rates but Signals Caution Ahead
As expected, the Fed reduced the federal funds rate by 25 basis points to a range of 3.75% to 4.00%. There were no significant surprises in the meeting statement, which noted the high level of uncertainty in the economic outlook due to government policy changes and the lack of economic data during the shutdown. The big news came during the press conference after the meeting. Investors had been pricing in a roughly 90% chance of an additional 25 basis point rate reduction at the next meeting in December, so they were caught completely off guard when Fed Chair Powell said that another rate cut is far from a sure thing, with “strongly differing views” among officials about how to proceed.
Fed to Resume Bond Purchases
While it was widely anticipated, another policy change also was notable. The Fed maintains an enormous portfolio of bonds. so that banks will have access to liquidity to help the economy run smoothly. To boost the economy during the pandemic, the Fed more than doubled its holdings of Treasuries and mortgage-backed securities. Since 2022, it has been gradually returning to more normal levels by letting maturing securities roll off its balance sheet without replacing them. According to Fed Chair Powell, the current portfolio of roughly $6.6 trillion is likely the appropriate size based on economic conditions. As a result, the Fed will resume purchasing bonds to replace maturing ones, although the mix of securities may shift over time.
Consumer Confidence Drops on Tariff Worries
The latest confidence survey published by the Conference Board revealed that consumers are concerned about the impact of higher tariffs and the government shutdown. In October, the index dropped to the lowest level since the new tariffs in April. The decline was steepest among younger and lower-income consumers. In particular, the outlook for future labor market conditions weakened.
Refinance Applications Surge Over 100%
It was another good week last week for mortgage applications, especially for refinancings, according to the Mortgage Bankers Association (MBA). Applications to refinance rose 9% from the prior week and were a massive 111% higher than one year ago. Purchase applications increased 5% from the prior week and were up 20% from last year at this time
Mortgage Rates for the week of 11-03-2025