Federal Reserve Statement Explained – December 2024

The Federal Reserve lowered the target for the federal funds rate to a range of 4.25% – 4.5%. This was widely expected by the markets. Much more focus is on what the Fed thinks about the future. With inflation coming down, but not as fast as the Fed would like, most of the attention is being paid to the quarterly projections of officials.

If there aren’t emergency circumstances, the Fed generally likes to adjust the federal funds rate in 0.25% increments, so you can get an idea of how many cuts they’ll make by looking at the projection.

The federal funds rate for 2025 is now anticipated by officials to end at 3.9%, as opposed to 3.4% in the September estimates. This gives the idea that the Fed thinks inflation might now be a little slower to come down. Instead of four cuts, the market will now be pricing in two. This means mortgage rates will be a little higher for longer.

Why The Projections Matter

Once a quarter, the Fed releases its projections regarding several economic indicators, including gross domestic product, the unemployment rate and inflation. What the Fed is most concerned with is inflation after food and energy are taken out.

The Fed uses the federal funds rate to try to moderate inflation. A lower target range stimulates the economy by lowering borrowing costs, letting people spend more and increasing employment across the economy. At the same time, this can cause inflation to go up because people are willing to pay higher prices if they have more access to cash.

The Fed has a two-pronged mandate to maintain stable processes and set the conditions for maximum employment. Because those two things are sometimes in opposition, it’s a balancing act.

The Federal Reserve has been consistently raising the federal funds rate range since March 2022 to control inflation. That’s only recently changed because there’s concern about the effect it’s having on the labor market. With recent indications that inflation remains stubborn, the Fed is likely to make any move to lower rates very cautiously.

What This Means For Home Buyers

If you’re a home buyer, it’s more about expectation of what’s going to happen with interest rates than anything the Fed does on announcement day. Unless the markets are truly surprised, the move is priced in well in advance, given the way the mortgage market works.

Mortgages are packaged on the bond market for investors up to 60 days after you close your loan. Because of this, the rate you can lock today is based on what the market thinks rates will be well into the future. This is why the projections signaling expected behavior are more important than waiting on the Fed actions themselves.

Even if the long-term direction is toward lower rates, ending at a higher neutral point for the federal funds rate would cause mortgage rates to remain higher than previously anticipated in the September projections.

Of course, none of this is in your control. What you can do is position yourself to get the best interest rate possible. Continue to work on your credit and save for your down payment. If your lender doesn’t have to give you as much to buy a home, it’s a better risk. This leads to a more favorable rate.

As long as you maintain your good credit habits after you close, you’ll be well-positioned to refinance and take advantage of lower rates if they drop in the future. Homeownership is a long game. Focus on the payment more than the rate itself.

What This Means For Those Refinancing

If you’re refinancing, lower is always better. While it’s unlikely that mortgage rates are going to fall in the short term because this matches market expectations, you could find that rates are going up based on higher long-term projections.

So if you like the rates you see today to refinance or do a home equity loan, that represents an opportunity. If you’re financially ready, you can pounce on it.

In addition to the payment, the other key thing to think about is whether you have enough equity to accomplish your goals. That’s true regardless of whether you’re doing debt consolidation or some sort of home improvement.

Whether a refinance of your primary mortgage or a home equity loan, if you’re looking to do debt consolidation, the rate is going to be lower than it would be for a credit card or personal loan because it’s secured by your home. This is a good argument for mortgage financing no matter the rate environment if you have the equity and a need for the funds.

If you’re interested in going over your options, we encourage you to start an online application. One of our Home Loan Experts can help you determine the right move based on your situation.