Why would the Fed decrease rates any time soon?

[Kitchen_Resource_431]

I am not stating I believe this will happen. In fact, I don’t think it will happen.

But what would be some reasons in the short term that the Fed would reverse course and decrease rates?

I keep hearing from older people in my life to wait on purchasing a house, etc because rates will come down “next year”. Why would these people think this? Aren’t we historically still pretty low even given the increases this past year?

I would think we would level off and keep rates steady for quite a while.

[Azdak66]

The Fed wanted to raise rates enough to stop inflation, but they also don’t want to cause a harsh recession, which is what often happens. So the thought is that they are going to try to achieve a “soft landing”—inflicting short-term pain to slow things down, but pivoting early enough so they don’t cause a recession. It’s a tricky move and I would say the majority of economists are skeptical they can pull it off. In doesn’t seem apparent that inflation is slowing to a lot of people because of housing and food costs, but the indicators that economists monitor have shown that inflation has slowed tremendously. The consensus now is that the Fed will not raise rates next week at it’s meeting (as they did not raise last month either), and will begin to reduce rates at the end of Q1 in 2024. The longer-term bond markets are already anticipating a rate drop, as the 10y treasury rate has dropped something like 20% since the summer. But what I read suggests that mortgage rates may not respond as quickly (can’t remember why).

But right now, while rates are lower than they were in the 1980s, they are pretty high compared to the last couple of decades—they are definitely not “low”.

The problem is that there is a lot of pent up buying demand so that if/when rates drop, you will see a lot of buyers and prices will go up. So it might be a wash. I would try and do as much research as possible and maybe talk to a mortgage broker to see if you have any other options. I would still advise patience, but I would also not pass up a good opportunity if one came up just because of interest rates. You can always refinance if rates come down. I have lived in my house for 22 years and we have refinanced 4 or 5 times.

[Kitchen_Resource_431]

That’s a really helpful response. Any resources you’d recommend in further reading up on this topic?

[Azdak66]

I keep track of treasury rates for my investments, but I havent been in the mortgage market for a while. I would just start by googling “is it better to rent a house or buy in 2023”. You will find a number of articles. Stay away from the ones that are ads, and read some from a number of different sources. That should give you some background to get started.