Breaking: Fed Rate Cut Sends Mortgage Rates Tumbling

Hey folks, Dan Frio here with your closing bell for November 7th, 2024. Well, the Federal Reserve did it. They cut rates, but how much? Well, exactly what the markets were expecting. So that's why the markets reacted the way they did. If you haven't seen today's reaction, let's get to it. The first thing you're seeing on the screen is rates. Mortgage rates on the 30-year fix drop about an eighth of a percent. That wasn't across the board, but most likely that's where the rates are down. So now the 30-year fix is now at 6.9%. Far cry from where we were. Just think, about a year ago, we were at 8%. So the progression's pretty good there. So here's the news that we got for today. The Federal Reserve cut again. How much? A quarter percent. That's exactly what the markets expected. So the good news there is, if you go over to the equity markets, there's no reaction. The Dow Jones stayed steady. That's in the red, but it's down, what, 0.5? It picked up 1,500 yesterday and didn't give it back. That was a kudos there. Then you see the S&P, the NASDAQ are both up. Russell 2K is down 10 ticks, and we'll let that go there. And then the VIX, the VIX, right over top of my head, that's at a 15. So what that tells you, anything from like 15 to 18 to 20, it's basically saying the markets are calm. So when you start getting the 30, 40, the points there, that's when the markets are freaking out and you'll see huge volatility in the market. So if you're new to that, check the VIX. That'll show you how much anxiety's in the market. So that's what we have right there. So now let's get over to the bond market. This is why you guys are here. This thing right through here. So what is this? Well, this is the MBS market. The MBS market is basically this. It's a bond that trades on Wall Street. It's yield is the biggest component of your mortgage rate. The Federal Reserve doesn't set the mortgage rates. Your bank doesn't set the mortgage rates. This bond right here, it's called the MBS. It's a mortgage-backed security bond and it trades on Wall Street. Investors buy it. You might even have it in your portfolio. Here's the good news, okay? The good news is, the last time the Federal Reserve cut rates, it was 50 base points and it was back in September 18th. Okay, they cut by 50 base points. The market wasn't expecting that. They were like, okay, they're probably gonna do 25. So there was kind of chaos in the markets. You had some bond vigilantes. You also had, at that time, the election coming out and there was a bunch of uncertainties, okay? So now what happened is the market rallied all the way into this. This is from yesterday's chart, okay? So here's where yesterday started, which you have to remember though, too, is as this bond moves up, rates are coming down. So yesterday we came out of the gate and it was kind of choppy. And then at the end of the day, we had a nice little rally, okay? So then we rallied throughout today and then right about two o'clock, right in here, the Federal Reserve announced their rate cut and then the market held. Fantastic, because last time, the following day, within 24 hours, the bond market just took a complete 360 or 180, whatever you wanna say. So we're gonna come back on this tomorrow to see if this continuation goes, okay? So there was an interview right through here. Federal Chairman Powell, they came out today and they basically told us what they're gonna do. And then they take interview questions from the media. This young man is from the Wall Street Journal. He asked him a specific question about this. He says, well, last year, when mortgage rates hit 8% and bond yields were above 5%, you made a comment, Mr. Powell, is if we keep rates too high for too long unnecessarily, it'll be a drain on the economy. So he picks up with this question right through here. And I thought it was intriguing. You guys might wanna listen to it. So let's listen to this. And then I'm gonna show you basically maybe what the calendar looks like for tomorrow. But I think we're, basically the markets are out of bullets tomorrow. We're just gonna see how this progresses through tomorrow. But let's check out this interview. Chair Powell, Nick Timrose from the Wall Street Journal. Roughly one year ago, when the 10-year Treasury was flirting with 5% and three-year mortgage rates were near 8%, you noted how higher borrowing costs, if they were sustained, could weigh on economic activity. Given that you've said you believe policy is restrictive and the Fed is now dialing back that restriction, are the growth risks presented by higher U.S. Treasury yields today any different from those you identified one year ago when inflation was still meaningfully above your target? So I would just say this. We've watched the run-up in bond rates and it's nowhere near where it was, of course, a year ago. I guess the long run rates are well below that level. So we're watching that. Things have been moving around and we'll see where they settle. I think it's too early to really say where they settle. Ultimately, I'm sure we've all read these decompositions of what, and I certainly have, but it's not really our job to provide our specific decomposition. I will say, though, that it appears that the moves are not principally about higher inflation expectations. They're really about a sense of more likelihood of stronger growth and perhaps less in the way of downside risks. So that's what they're about. We do take financial conditions into account if they're persistent and if they're material, then we'll certainly take them into account in our policy. But I would say we're not at that stage right now. It's just something that we're watching. And again, these things don't really have mainly to do with Fed policy, but to do with other factors in the economy. If I could follow up, is the September SEP, are those rate projections still valid? Do they still seem relevant given where we are now? You know what, you get halfway through the cycle between the last set and the next set. I wouldn't wanna comment one way or the other. Let's talk about the data we've gotten since the last meeting. So in the main, the economic activity data have been stronger than expected. The NIPA revision was stronger. Certainly the September employment report was stronger. The October report, not stronger. Retail sales, stronger. So overall though, I think you take away a sense of some of the downside risks to economic activity having been diminished with the NIPA revisions in particular. And so overall feeling good about economic activity. So I think we would factor that in. At the same time, we got one inflation report, which was, it wasn't terrible, but it was a little higher than expected. So I think really the question is December, and by December we'll have more data. I guess one more employment report, two more inflation reports, and lots of other data, and we'll make a decision as we get to December. Pretty cool. So the Fed's still gonna be data dependent, but they did cut a quarter percent today. Mortgage rates actually had a nice rally today as well. So they're down at 6.9%. Let's hope these gains stay overnight. My name is Dan Frio, and I do this report every day to help you guys understand the markets. When I talk about the markets, I talk about equity markets, the bond markets, and also mortgage rates and housing. So if you'd like, if you're interested in maybe trying to buy that first house, maybe trying to get refinance, or maybe looking to buy that first investment property, please reach out to us. We'd love to help you in any way we can. I'm licensed in all 50 states, as well as Puerto Rico. You can click the Apply Now button right up through there, or what you can do is scroll down right to the bottom of the website, and you'll find our 800 number as well as my email address right through there. So thanks so much for watching, guys. God bless. Have a fantastic evening, and I'll see you back here to see how this mess starts tomorrow. Take care. See you then. Bye-bye.