After years of keeping interest rates high to tame inflation, Federal Reserve officials are openly talking about the need to cut rates soon. Federal Reserve Governor Austin Goolsbee said the June Consumer Price Index showed many prices were flat or even falling, making it time for policymakers to reassess the situation.
“We set this rate when inflation was over 4 percent, and now it's at 2.5 percent,” Goolsby told The Wall Street Journal in an interview. “So we've tightened it up quite a bit since we've had it there.”
The Federal Reserve last raised the federal funds rate in July 2023, bringing it to its current level of 5.25% to 5.5%. This rate directly impacts the interest rates consumers pay on credit cards and auto loans.
Credit card interest rates are currently at an all-time high, and auto loans are also expensive, which may be contributing to the slump in new and used car sales.
Fed Chairman Jerome Powell has also suggested it may be time to consider lowering interest rates. Speaking at the Economic Club of Washington, D.C., Powell said the central bank doesn't need to wait for inflation to hit its 2% target before cutting interest rates.
Inflation target in sight
“What that means is that if you wait until inflation gets down to 2 percent, you've probably waited too long, because the tightening, or the level of tightening, that we're currently having is still having the effect of pushing inflation down below 2 percent,” Powell said.
The Federal Reserve meets this month, but Wall Street expects policymakers to wait until their September meeting to deliver their first rate cuts.
But what does this mean for mortgage rates, which have been hovering just above or below 7% lately? To get a sense of what the future holds for mortgage rates, we need to look at the 10-year Treasury bond.
Mortgage rates are tied to interest paid on bonds, and rates rise and fall based on a variety of factors. This week, the yield on the 10-year Treasury note recorded its biggest increase in two weeks, suggesting that mortgage rates will rise again in the coming week or so.
Reporter Mark Huffman
Mark Huffman has been a consumer news reporter for ConsumerAffairs since 2004. He covers real estate, gasoline prices and the economy and has reported extensively on negative option selling. He previously worked as a reporter and editor for The Associated Press in Washington, D.C., and was a correspondent for Westwood One Radio Networks and Marketwatch.
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